SEC charges Berliner with fraud for false rumor; Berliner agrees to settlement

By Laura Lutz

Des Moines, April 24 - The Securities and Exchange Commission filed a settled civil action against Paul S. Berliner for securities fraud and market manipulation for intentionally spreading a false rumor about the Blackstone Group's acquisition of Alliance Data Systems Corp.

The suit was filed in the Southern District of New York.

Berliner is a Wall Street trader formerly associated with Schottenfeld Group, LLC, the SEC said.

Without admitting or denying the allegations, Berliner agreed to a settlement that enjoins him from future violations of relevant laws, orders him to disgorge $26,129 in illicit trading profits and prejudgment interest, and orders him to pay a third-tier civil penalty of $130,000.

Berliner also consented to an order barring him from associating with any dealer or broker.

The SEC's complaint alleges that on Nov. 29, 2007, about six months after Blackstone entered into an agreement to acquire Alliance at $81.75 per share, Berliner created and spread a false rumor that Alliance's board was meeting to consider a revised proposal from Blackstone to acquire it at $70 per share.

According to the SEC, the false rumor caused the price of Alliance stock to plummet.

The SEC says that Berliner profited by short selling Alliance stock and covering those sales as the price fell.

The complaint says that Berliner spread the false rumors through instant messages to traders at brokerage and hedge funds and that the news media picked up the false story soon after.

Within 30 minutes, the price of Alliance stock plunged 17%, to $63.65 per share from $77 per share, the complaint says.

Alliance issued a press release later in the day saying that the rumor was false, and the price of Alliance stock recovered by the end of the day. The SEC said that more than 33 million Alliance shares were traded that day, more than 20 times the previous day's volume.

The complaint alleges that Berliner violated section 17(a) of the Securities Act of 1933, sections 9(a)(4) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

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