NASD Charges Pennsylvania's Scott W. Ryan, Ryan & Company With Impermissible Short Selling Scheme for Hedge Fund Clients
Ryan Previously Barred, Firm Expelled for Failure to Cooperate with NASD Probe
Washington, DC, June 13, 2005 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.
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 registered firms. For more information, please visit our Web Site at www.nasd.com.
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