Officials for Penson Financial Services Inc. said that a video circulating on the Internet of one of its traders engaging in an apparent naked short sale is a fraud that unfairly accuses the firm of violating Securities and Exchange Commission regulations.
In a letter sent last week to both the SEC and the
Financial Industry Regulatory Authority Inc., Tim Davis, associate general counsel at Penson, called the video an “apparent hoax” that made “an unsupported accusation of a violation of Regulation SHO by Penson.” Reg SHO is the SEC's short-sale rule that requires a short-seller to first locate a stock before shorting.
At issue is a YouTube video, titled “Penson Approves Billion Share Naked Short,” that purports to show an unidentified trader getting a “locate” — a potential lender — for a large number of shares of an unnamed stock through Penson's trading system.
Rolling Stone journalist Matt Taibbi, who runs the blog True/Slant, has used the video to criticize the practice of naked shorting, in which shares sold short are never delivered.
In a post last Monday on his site, he said that the amount shown was in the “tens of billions of shares” but that the float for the stock was just 5.5 billion shares.
Andy Yemma, a spokesman for Penson, said that one version of the video shows that
Citigroup Inc. stock is the issue being “located.”
Mr. Davis told regulators that Penson's internal records show no locates of the stock and that the trading system shown isn't Penson's.
Daniel Son, president of Penson's parent, Penson Worldwide Inc., said several “doctored” versions of the video have appeared on YouTube.
In his post, Mr. Taibbi said that the video had been given to him last week. He didn't name a source.
Mr. Taibbi didn't respond to an e-mailed request for comment.
In his letter to regulators, Mr. Davis said that Penson was uncertain if the video was a hoax “or something more deliberate.”
Penson clears for 546 correspondent firms in the United States, Canada and the United Kingdom.
The video and Penson's response were reported earlier by the Business Insider/Clusterstock website.
E-mail Dan Jamieson at [email protected].
