Washington, DC — NASD announced today that it has charged Scott W. Ryan of Bryn Mawr, PA, and Ryan & Company, LP (RYCO) of West Conshohocken, PA, with engaging in a long-term, widespread scheme of impermissible short selling activity on behalf of three hedge fund clients.
Ryan was barred from the securities industry and RYCO was expelled by an NASD Hearing Panel in June 2004, for failing to cooperate in the investigation that led to the charges announced today. That hearing panel decision has been appealed to NASD's National Adjudicatory Council. Ryan's bar and RYCO's expulsion have been stayed pending the outcome of that appeal.
NASD has now charged Ryan and his firm with carrying out a scheme to create and maintain short positions in OTC equity securities on behalf of three RYCO client hedge funds. The hedge funds were unable to sell the stocks short themselves because they could not satisfy NASD's affirmative determination requirements. To circumvent the restrictions that prohibited the hedge funds from selling short, RYCO would register as a market maker in the security, and then, under the guise of its market maker status, sell the stock short at the behest of the hedge funds. In each instance, RYCO sold the stock short without making and annotating an affirmative determination that the firm could borrow the security or otherwise provide for delivery of the security by settlement date. As a result of their illicit conduct, RYCO reaped substantial profits.
NASD further charged RYCO with failing to correctly report short sale transactions. Ryan and RYCO also face charges of failing to report option positions and of supervisory failures.
Ryan's registration with NASD and RYCO's registration as a broker-dealer were both voluntarily terminated on April 30, 2004.
Under NASD rules, a firm or individual named in a complaint can file a response and request a hearing before an NASD disciplinary panel. Possible remedies include a fine, censure, suspension, or bar from the securities industry, and disgorgement of gains associated with the violations.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2004, members of the public used this service to conduct more than 3.8 million searches and request almost 190,000 reports for existing brokers or firms. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
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