DAY TRADERS AND THEIR BOSS DISABLED TRADING SOFTWARE TO ALLOW ILLEGAL SHORT SELLING
The SEC filed a civil injunctive action against 2 day traders and the head of their firm for disabling their trading software so as to allow short sales in violation of the uptick rule. The traders desired to drive down the value of certain securities in order to cover short positions. The firm’s CEO told them how to disable the firm’s trading software which was programmed to prevent violations of the uptick rule. The SEC alleged that the firm earned over $2 Million in illicit gains from the scheme.
OUR TAKE: Technology alone does not ensure compliance. Smart wrongdoers will find a way to capture significant financial gain. Compliance officers should always consider some form of testing to see if the relied-upon technology is doing its job.