SEC Accuses Ex-Trader of Blackstone Ruse

NEW YORK -- The Securities and Exchange Commission accused a former trader of spreading false rumors about a Blackstone Group takeover bid and then profiting from the ruse, The Wall Street Journal reported.

In a complaint filed Thursday in U.S. District Court in New York, the SEC alleges that Paul Berliner, a trader for New York trading firm Schottenfeld Group, used instant messaging to circulate the notion that private-equity group Blackstone was considering lowering its price for Alliance Data Systems, a processor of credit-card transactions it had agreed to acquire for $6.4 billion six months earlier, the paper reported.

The message: "hearing the board is now meeting on a revised proposal from Blackstone to acquire the company at $70/share, down from $81.50," Berliner wrote around 1:10 p.m EDT on Nov. 29, according to the paper. "Blackstone is negotiating a lower price due to weakness in World Financial Network-part of ADS' Credit Services Unit, as evidence [sic] by awful master trust data this month from the World Financial Network Holdings off-balance sheet credit vehicle."

As he sent the first message, ADS shares traded around $77. Over the next seven minutesBerliner began selling short 10,000 shares of ADS stock, a bet it would fall in price, the SEC said. Almost immediately, as the stock fell, Berliner began buying it back at the lower price, turning a $25,000 profit on the trades within 10 minutes, the paper reported.

"Our client looks forward to putting this matter behind him and moving on with other endeavors," Balestriere Lanza PLLC, the law firm representing Berliner, said in a statement, according to the paper.

-- NYSSCPA.org News Staff

Posted on 4/25/08