The Financial Industry Regulatory Authority (FINRA) fined StockCross Financial Services $800,000. StockCross Financial is owned by David Gebbia, the husband of the former “Real Housewives of Beverly Hills” star Carlton Gebbia. It is alleged that StockCross engaged in naked short selling, which is the practice of short selling shares that have not been affirmatively determined to exist. Due to various loophoes in the rules and discrepancies between paper and electronic trading systems, naked short selling is possible. Many short sales fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period as evidence of naked shorting. Naked shorts may represent a major portion of these failed trades. FINRA claims StockCross violated regulations requiring that they deliver shares of a security they had sold short, and had inadequate supervisory systems that went back three years or more.
The Securities and Exchange Commission (SEC) have rules in place to stop “abusive” short selling. FINRA also found that from November 2009 until May 2013, the firm’s system to monitor and track the sales of securities it sold short was “fundamentally flawed.” FINRA claims that because of this failed system, StockCross failed to deliver the shares for seven or more consecutive settlement days in 2,000 instances. The firm also executed over 4,000 short sales without delivering or borrowing the security.
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