Article: Supreme Court Decides Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning

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Supreme Court Decides Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning

Chuck Webber, Jeffrey P. Justman, James G. Martignon, 05 May 2016

On May 16, 2016, the Supreme Court of the United States decided Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, No. 14-1132, holding that that the “arising under” test for federal-question jurisdiction under 28 U.S.C. § 1331 determines whether federal courts have exclusive jurisdiction under section 27 of the Securities Exchange Act of 1934 (the “Exchange Act”) of lawsuits to enforce liabilities or duties created by that Act. (The Court did not address the portion of section 27 that gives federal courts exclusive jurisdiction of “violations of this chapter or the rules and regulations thereunder” with respect to criminal and regulatory enforcement actions.)

Greg Manning owned stock in Escala Group, Inc., a company traded on the NASDAQ. Between 2006 and 2007, Escala’s share price plummeted and Manning lost most of his investment. Manning blamed Merrill Lynch and other financial institutions for devaluing Escala during that period through “naked short sales” of its stock, under which one borrows stock from a broker and sells it to a buyer on the open market, but never delivers the shares back to the buyer. “Naked” short sales of stock may be designed to drive down a company’s stock price, and are accordingly regulated by Regulation SHO. Continue reading “Article: Supreme Court Decides Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning”

Article: SCOTUS Send Merrill Lynch Case to NJ State

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SCOTUS Send Merrill Lynch Case to NJ State

ADAM KLASFELD, 06 May 2016

Merrill Lynch and other brokerage firms must face a state court case that says illegal naked short sales cost investors more than $800 million, the U.S. Supreme Court ruled Monday. The shareholders brought their case four years ago in New Jersey over the Fortune 500 memorabilia company Spectrum Group International, then known as Escala Group. One of the investors, Greg Manning, said “naked short selling” sent his more than 2 million Escala shares into a nosedive. In typical short sales, investors speculate that the price of a stock will decline and purchase securities that they do not currently own in order to profit from the fall. Securities laws and regulations mandate that a short seller borrow the stock it sold and deliver it within four days of sale. Continue reading “Article: SCOTUS Send Merrill Lynch Case to NJ State”

Filing: SEC v Merrill Lynch

Filing

SEC v Merrill Lynch

1 June 2015

These proceedings concern Merrill’s violations of Regulation SHO (Reg SHO”) of the Exchange Act, in connection with its practices relating to its execution of short sales. As described more fully below, the violations arose from two separate issues concerning Merrill’s use of its “easy to borrow” lists.

PDF (11 pages): SEC v Merrill Lynch

Article: FINRA Fines Merrill Lynch $6 Mln for Failing to Prevent Naked Short Selling

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FINRA Fines Merrill Lynch $6 Mln for Failing to Prevent Naked Short Selling

Victor Golovtchenk, 28 October 2014

According to an announcement by the U.S. Financial Industry Regulatory Authority (FINRA), U.S. bank Merrill Lynch’s Professional Clearing Corp. (Merrill Lynch PRO) got fined $3.5 million for violating Regulation SHO. The Securities and Exchange Commission (SEC) implemented this rule in 2005 to prevent the conducting of a practice called naked short selling.

Merrill Lynch’s affiliated broker-dealer Pierce, Fenner & Smith Incorporated (Merrill Lynch) has also been fined $2.5 million for failing to establish, maintain and enforce supervisory systems and procedures related to Regulation SHO and other areas, according to the FINRA announcement. Continue reading “Article: FINRA Fines Merrill Lynch $6 Mln for Failing to Prevent Naked Short Selling”