Hedge Fund Says Banks’ Spoofing, Naked Shorting Cost It Big
Jon Hill, 29 January 2021
A Bermuda-based hedge fund has accused several major financial institutions’ U.S. and Canadian securities arms of engaging in spoofing and naked short-selling, alleging in a new Manhattan federal court lawsuit that their tactics caused it to suffer losses in the tens of millions of dollars back in 2016.
In a complaint filed Thursday, Harrington Global Opportunity Fund Ltd. said U.S. and Canadian broker-dealer affiliates of Bank of America, TD Bank, UBS and several other large financial institutions drove down the stock price of the former Concordia International Corp. through illegal trading practices, forcing the hedge fund to sell its own shares in the pharmaceutical company at artificially low prices.
“Harrington reasonably believed that it was selling its Concordia shares into a market that was fair, efficient and free from manipulation, not knowing that in fact, the market was being unlawfully manipulated by the defendants,” the fund said in the more than 100-page filing.
Spoofing is a banned trading practice that involves placing and canceling numerous buy or sell orders to send false price signals and move markets in favorable directions, while naked short-selling is a similarly banned practice that involves shorting a company’s shares without actually borrowing them first.
Harrington’s suit alleges differing groups of the broker-dealer defendants used these tactics to manipulate the market for Concordia shares between January 2016 and November 2016, bringing the stock price down from $34.77 to $1.83 as the hedge fund sold 9 million of its own Concordia shares.
