finra

FINRA

 

FOR RELEASE:
CONTACTS:
Wednesday, October 30, 2002
Nancy A. Condon 202-728-8379
Michael Shokouhi 202-728-8304

NASD's NAC Upheld Previous Decision; Fraudulent Manipulation and Illegal Short Sales Result in Expulsion of Fiero Bros., Bar of John Fiero and Fine of $1 Million

Washington, D.C. — NASD announced today that its National Adjudicatory Council (NAC) affirmed an NASD Hearing Panel's decision that John Fiero and Fiero Brothers, Inc. of New York, NY, violated NASD and federal securities antifraud laws when they colluded to manipulate the market for several small cap securities through a massive short-selling campaign. The NAC also found that Mr. Fiero and Fiero Brothers violated NASD affirmative determination requirements by executing numerous short sales without having determined that they could borrow the securities or otherwise provide for delivery. The NAC fined John Fiero and Fiero Brothers $1 million, barred Mr. Fiero in all capacities, and expelled Fiero Brothers from membership.

 

The NAC determined that John Fiero and Fiero Brothers participated in a "bear raid," a coordinated, manipulative action in which short selling is used to drive down the price of a security by creating a false imbalance of sell-side interest. Fiero and Fiero Brothers engaged in a manipulation and deception that "violated public trust and jeopardized market integrity," according to the decision.

 

Specifically, John Fiero and the firm intentionally drove down the prices of several small cap securities by amassing sizeable short positions in those securities with the aim of demonstrating a large demand to sell the securities. The underwriter of the manipulated securities, who held large proprietary positions in the securities, was coerced to sell Fiero Brothers blocks of the manipulated securities at deeply discounted prices. Mr. Fiero used the discounted securities to cover the firm's short positions at a sizeable profit and sold the remaining securities to other short sellers to cover their short positions, thereby generating significant profits for them and additional profits for Fiero Brothers.

 

The NAC also found that Fiero Brothers, after covering its short positions, commenced a second wave of illegal short selling in the same securities that eventually drove Hanover Sterling & Co., Inc., the underwriter of the securities, out of business and led to the bankruptcy of its clearing firm, Adler Coleman Clearing Corp.

 

A key aspect of Mr. Fiero and Fiero Brothers' manipulative conduct was its violation of NASD's affirmative determination rule. The affirmative determination rule requires a securities firm to determine, prior to selling a stock short, that it can borrow securities or provide for delivery by settlement date before effecting a short sale of the securities. The rule prevents short selling by those who do not have, and have no intention of delivering, the stock that they are selling. The NAC found that, over the course of two months and in connection with Fiero Brothers' short sales of the manipulated securities, Mr. Fiero and the firm violated NASD's affirmative determination rule in a number of instances.

 

The NAC concluded that, as a result of John Fiero and Fiero Brothers' manipulative conduct, they intentionally injected into the marketplace inaccurate information regarding the level of interest in the manipulated securities because it was the concerted efforts of Mr. Fiero and Fiero Brothers and not the free forces of supply and demand that created the appearance in the marketplace of a massive selling effort.

 

The NAC is a 14-person committee composed of seven industry and seven non-industry members that decides appeals from disciplinary, membership, and exemption decisions; rules on statutory disqualification applications; and advises on other policy matters. Before John Fiero and Fiero Brothers appealed this case to the NAC, an NASD Hearing Panel heard the matter. A Hearing Panel consists of an NASD Hearing Officer along with two members of the securities industry.

 

NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and members firms. For more information, please visit our Web site.