The Securities and Exchange Commission (SEC) has charged a Chicago-based options trader Gary Bell with violating short selling restrictions for failing to locate and deliver the short sales shares to broker-dealers and their institutional customers.
SEC’s New York Regional Office director George Canellos said that Bell made profits of at least $1.5m with minimum risk by avoiding the cost of borrowing shares while engaging in short selling transactions.
According to SEC, Bell and broker-dealer GAS I engaged in two specific types of transactions where the first involved simultaneous selling of stock short and selling a put option and buying a call option on the stock.
The second was a combined stock-and-option transaction that creates illusion that the party subject to a close-out obligation has satisfied that obligation by buying the same kind and quantity of securities it has sold short.
SEC has further alleged that the transactions created a false appearance of compliance with the requirements of Regulation SHO.
Bell has, however, settled the SEC’s administrative proceedings without admitting or denying by agreeing to pay more than $2m.
The Commission’s order requires Bell to cease from committing or causing violations as well as association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization for a period of nine months.
Bell is also required to pay $1.5m in disgorgement, $336,094 in prejudgment interest, and a $250,000 penalty.
The Chicago Board Options Exchange had assisted SEC with the investigation into violations of Regulation SHO.
"We’ll continue aggressively to pursue and punish abusive short sellers who attempt to circumvent regulatory requirements to make more money," Canellos added.