NASD fines short-seller Asensio $75,000
By Brian Kelleher
NEW YORK, Nov 29 (Reuters) - Regulators on Wednesday slapped a $75,000 fine on Asensio & Co. and its founder, Manuel Asensio, who gained notoriety by publicly attacking corporate executives and their companies' accounting practices in the hope of profiting from a drop in their share prices.
NASD Regulation Inc., the regulatory body of the National Association of Securities Dealers (NASD), charged short-seller Asensio and his New York-based investment bank with violations of Internet-advertising, short-selling and trade-reporting rules. The NASD said in its statement that in settling, Asensio & Co. neither admitted nor denied guilt.
"We dispute the factual findings," Asensio told Reuters. "We signed the settlement agreement just to get them off our backs."
As a short-seller, Asensio would bet against companies he thought were overvalued and encourage his clients to do the same. In many cases, his firm would publish negative reports about the company's management and corporate practices.
Asensio said the NASD charges were political and linked to his pushing regulators to probe into allegedly shoddy listing practices of the American Stock Exchange (Amex).
"The inquiry of Asensio & Co. is political and is motivated entirely by our having exposed the American Stock Exchange and leaders of the American Stock Exchange and caused an investigation of the American Stock Exchange," Asensio said.
The NASD, which owns the Amex and the Nasdaq Stock Market, denied his allegation and said the charges were brought because Asensio had broken its rules.
"The violations in this case are based entirely on the actions of Mr. Asensio and his firm, there's no basis whatsoever for any claims of retaliation," said Brian Rubin, NASD assistant chief counsel.
Michigan Rep. John Dingell, the ranking Democrat on the U.S. House Commerce Committee, asked the General Accounting Office (GAO) on Nov. 13 to look into allegations raised by Asensio about the quality of at least three companies listed on the Amex.
"Mr. Asensio ... describes a separate alleged scheme in which eight recent Amex listings purportedly have been manipulated for the purpose of defrauding Russell Stock Index mutual funds," wrote Dingell in a letter to the GAO. The Russell 2000 Stock Index is an index of small and medium-sized stocks, some of which trade on the Amex.
NASD'S CHARGES
The NASD charges related to Internet advertising deal with Asensio's research reports recommending short selling.
An investor shorts stocks by borrowing shares, or selling them, in the hope their price will fall. The same investor buys the shares back later to close the positions. If the price of the stock has fallen in the interim, the investor makes money.
There is a high degree of risk involved in shorting stocks because a stock price, in theory, can rise in value infinitely, putting no ceiling on the short-seller's losses.
Seven research reports on Asensio's Web site recommending short-selling failed to give details of the risks involved in the business, the NASD said.
For 306 short sales done by Asensio & Co. between August 1998 and July 1999, the firm failed to note in writing on its orders that it could borrow the stock it was selling short or have it for delivery when the firm closed its position, the NASD said. For 117 cases, the NASD alleges that Asensio & Co. failed to borrow the shares before selling them short.
Asensio dismissed those charges as "technical," and contended that the NASD has never charged the firm with actual trading violations, like selling a stock short while its price was falling.
The NASD said 331 short sales done between August 1998 and July 1999 were reported on the Nasdaq Stock Market's Automated Confirmation Transaction Service as normal sales, not shorts.
Asensio's associates also posted at least 14 Internet bulletin board messages praising the firm's research and claiming they had no relation to the firm, the NASD charged.
The NASD said Asensio agreed to pull the advertisements in question and also agreed to hire an outside consultant to review the company's policies and procedures relating to the charges. |
