Litigation Release No. 25092 / May 20, 2021
Securities and Exchange Commission v. BTIG, LLC, No. 21-civ-4521 (S.D.N.Y. filed May 19, 2021)
On May 19, 2021, the Securities and Exchange Commission charged broker-dealer BTIG, LLC with repeatedly violating the order-marking and locate provisions of Regulation SHO, which regulates the short-selling of securities.
According to the SEC’s complaint, from December 2016 through July 2017, BTIG violated Rule 200(g) of Regulation SHO when it mismarked more than 90 sale orders from a hedge fund customer-representing total sales of more than $250 million-as “long” and “short exempt” when those orders should have been marked as “short.” According to the complaint, as a registered broker-dealer, BTIG had independent gatekeeper responsibilities to ensure that the trades it executed were correctly marked. The SEC alleges that BTIG ignored facts indicating that the hedge fund’s representations that it owned the securities it was selling and that it would deliver them by the settlement date were false. In particular, the SEC alleges that BTIG was aware of prior compliance concerns regarding the hedge fund, the hedge fund’s net short position in the securities it was selling in its BTIG account, statements by hedge fund employees indicating that they did not expect to deliver the securities by the settlement date, the hedge fund’s failure to provide documentation showing that it owned the securities on the trade date, and the hedge fund’s repeated failure to deliver the securities by the settlement date. Despite these and other red flags, BTIG allegedly continued to mark the hedge fund’s orders as “long” and “short exempt” without taking reasonable steps to determine whether those order markings were correct. In addition, the SEC alleges that because BTIG failed to borrow or locate the shares before effecting what were, in reality, short sales, BTIG also violated Rule 203(b)(1) of Regulation SHO.
The SEC’s complaint, filed in the Southern District of New York, charges BTIG with violating Rules 200(g) and 203(b)(1) of Regulation SHO. The SEC seeks injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties.
The SEC’s investigation, which is continuing, is led by Emily Shea and Michael Brennan and is supervised by Kevin Guerrero and Jennifer Leete. Market specialists Leigh Barrett, Kevin Gershfeld, and Brian Shute of the SEC Enforcement Division’s Office of Investigative and Market Analytics also provided assistance. The litigation is being led by Sarah Heaton Concannon and supervised by Fred Block.