SEC Charges Brokerage Firm for Short Sale and Other Violations
April 24, 2020
File No. 3-19768
April 24, 2020 - The Securities and Exchange Commission today announced settled charges against Biltmore International Corp., a registered broker-dealer based in New Jersey, for violating the federal securities laws governing the execution of short sales and the submission of suspicious activity reports (SARs).
The SEC's order finds that, from at least November 2016 through October 2017, while registered with the SEC, Biltmore failed to properly locate or borrow the necessary shares of stocks to cover its short sales, in violation of the federal securities laws. Specifically, Biltmore's customers were primarily other broker-dealers that liquidated large volumes of their customers' shares of thinly traded, low priced over-the-counter stocks. The order finds that Biltmore routinely facilitated the sales into the market by executing short sales throughout the day for its own account. Biltmore then later covered its short position by purchasing shares from the customers on a "net" basis, charging an average price at a pre-negotiated markdown. The order finds that, for at least several thousand of these short sales, Biltmore failed to locate shares of those stocks that it could borrow, as is required by the federal securities laws.
The SEC's order also finds that Biltmore failed to adequately monitor its customers' trading in low priced over-the-counter stock, did not look for risk indicators or red flags as specified in its policies and procedures, and failed to file SARs for numerous transactions that it had reason to suspect involved fraudulent activity or had no business or apparent lawful purpose.
The SEC's order charges Biltmore with violating the short-selling provisions of Regulation SHO Rule 203(b)(1) of the Securities Exchange Act of 1934, and the SAR-filing provisions of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. Without admitting or denying the SEC's findings, Biltmore agreed to be censured, to cease-and-desist from committing or causing violations or future violations of those provisions of the federal securities laws, and to pay a $125,000 civil penalty.
The SEC's investigation was conducted by Jay Scoggins, Jeffrey Oraker, and Danielle Voorhees of the Market Abuse Unit and Denver Regional Office and was supervised by Joseph G. Sansone, Chief of the Market Abuse Unit. The SEC's examination that led to the investigation was conducted by Ronald Krietzman, Ellen Hersh, Michael Fioribello, Ilan Felix, Simone Celio, Jr., Edward Janowsky, and Javen Zhong, and was supervised by Robert Sollazzo of the New York Regional Office. The SEC appreciates the assistance of FINRA.