Investment adviser duo forced to pay $7m in SEC probe with six worldwide regulators

The principal and trader of a Toronto-based global investment firm have been forced to make a $7m disgorgement payment after US regulator the Securities and Exchange Commission (SEC) charged them with "making erroneous order-marking information on hundreds of sale orders of their hedge fund client to the hedge fund's brokers, causing those brokers to mismark the hedge funds' sales as ‘long'".

The SEC order on 17 August charging Murchinson Ltd principal, Marc Bistricer; and its trader, Paul Zogala, found that in providing the inaccurate information, the respondents also caused the hedge fund's brokers to fail to borrow or locate shares prior to executing the sales.

The order also found that Murchinson and Bistricer caused the hedge fund to engage in dealer activity without registering with the SEC or being exempt from registration.

The SEC said it "appreciates the assistance" of the British Virgin Islands Financial Services Commission, the Hellenic Republic Capital Markets Commission, the Central Bank of Ireland, the Jersey Financial Services Commission, the Nova Scotia Securities Commission, and the Ontario Securities Commission.

Murchinson Ltd is regulated by the SEC and incorporated in the state of Ontario, Canada.

Jennifer S. Leete, associate director of the SEC Enforcement Division, said: "The SEC's order finds that Murchison, its principal, and its trader caused broker-dealers to violate Regulation SHO.

"Regulation SHO protects our markets against uncovered short sales and other problematic trading practices, so it is important to hold accountable market participants who cause violations of its critical requirements."

The SEC's order found that the respondents caused the hedge fund's executing brokers to violate the order-marking and locate requirements of Regulation SHO, and that Murchinson and Bistricer caused the hedge fund to violate the dealer registration requirements of the Securities Exchange Act of 1934.

Without admitting or denying the findings, the respondents each agreed to cease-and-desist orders, the SEC said.

In addition, Murchinson and Bistricer agreed to pay, jointly and severally, disgorgement of $7m with prejudgment interest of $1,078,183.
Murchinson, Bistricer, and Zogala also agreed to pay penalties of $800,000, $75,000, and $25,000, respectively.

Finally, Murchinson and Bistricer agreed to certain undertakings to ensure future compliance with Regulation SHO.

A company spokesperson for Murchinson said: "We are pleased to have resolved this highly technical matter."