Broker-Dealer Litigation - Greenberg Traurig LLP

Q.1.e(iv)
In re UBS Sec. LLC, Release No. 65733, 2011 SEC LEXIS 3985 (Nov. 10, 2011).
The Commission accepted an offer of settlement from UBS Securities, LLC, a registered
broker-dealer. The Commission alleged that Respondent’s lending desk traders recorded
“locates” (i.e., an indication that shares to satisfy a short sale had been identified, or alternatively
that reasonable grounds existed to believe the shares could be borrowed for delivery when due)
on the Firm’s “locate log” sourced to employees of lenders even when no one at Respondent had
contacted the lender to confirm the availability of shares, and duplicated and reused locate
approval information from prior locates to document new locate approvals. Respondent knew of
these practices and allowed them to continue. The Commission noted that several mitigating
factors existed. For instance, some of the locates Respondent granted were furnished to clients
who did not execute short sales using the locates, some of the lenders may have had the ability to
lend sufficient securities by the delivery date notwithstanding the inaccurate locate log, and
Respondent was generally able to meet its settlement obligations by borrowing stock from
sources other than the lenders identified in the locate log. The Commission censured
Respondent and ordered it to cease and desist from violating Section 17(a) of the Securities
Exchange Act of 1934 and Rule 203(b) of Regulation SHO, and to pay a $8 million civil penalty.
Respondent also undertook to hire an independent consultant to review its policies and
procedures with respect to granting locate requests and monitoring compliance therewith.
In re Bell, Release No. 65941, 2011 SEC LEXIS 4379 (Dec. 13, 2011).
Q.1.e(iv)
The Commission accepted an offer of settlement from Bell, a former registered brokerdealer,
former part owner of a registered broker-dealer and former member of the Chicago Board
Options Exchange. According to the Commission, Bell and his firm, both purported options
market makers, violated the locate and close-out requirements of Regulation SHO of the
Securities Exchange Act of 1934 by improperly relying on the market maker exception to avoid
locating shares before effecting short sales. The Commission also alleged that Bell and his firm
engaged in a series of sham reset transactions that employed short-term, paired stock and options
positions, which enabled them to circumvent their close out obligations. Additionally, Bell and
his firm assisted other options market makers who were executing their own sham reset
transactions by acting as a counterparty to the sham transactions. As a result of these activities,
Bell caused large persistent fail to deliver positions in SHO threshold securities. The
Commission ordered Bell to cease and desist from committing or causing any current or future
violations of the Exchange Act Rules 203(b)(1) and 203(b)(3), and to pay $1,500,000 in
disgorgement, a $250,000 civil penalty, and $336,094 in prejudgment interest. The Commission
also suspended Bell from association for nine months.
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