Somewhat OT but hits home on one of my favorite topics...
From this mornings Wall Street journal on line....
Civil Charges Are Expected
In Probe of Stock Lending
By KARA SCANNELL and PAUL DAVIES
September 20, 2007; Page C3
Federal authorities are expected to file civil charges against current or former employees at several brokerage firms in connection to a years-long investigation into abusive stock lending, people familiar with the matter said.
The civil complaint by the Securities and Exchange Commission, which also may involve the filing of criminal fraud charges, could come as soon as today, these people said.
The U.S. Attorney's office in Brooklyn, N.Y., and the SEC are investigating whether current or former employees at Janney Montgomery Scott LLC, Morgan Stanley, Van der Moolen, and other financial institutions committed fraud by taking kickbacks or engaging in self-dealing while arranging stock-lending agreements, the people said.
Spokespersons for Morgan Stanley and Van der Moolen declined to comment. A spokeswoman for Janney Montgomery Scott said the firm reached a settlement with the New York Stock Exchange in August and that the employees involved are no longer at the firm. The firms aren't expected to be charged.
The $10 billion stock-lending business for years operated largely under the radar. Its growth is associated with the increase in short-selling, a trading strategy that requires borrowing securities.
The investigation has centered on conduct involving mostly lower-level employees across Wall Street and related to the use of "finders," or firms that act as intermediaries and assist borrowers and lenders in locating stock to borrow, these people said.
The types of alleged schemes that authorities are investigating vary. Under one such alleged scheme, an individual at a brokerage would divert money to a family member at a finder shop, a way to artificially inflate the cost of borrowing. Under another alleged scheme, loans were being passed through several firms or intermediaries without any purpose other than to drive up the cost of borrowing the stock, these people said.
Some individuals have reached settlements with the SEC and have pleaded guilty to criminal charges, these people said. In its settlement with the NYSE, Janney Montgomery Scott agreed to pay $2.5 million to settle related charges over allegations that it failed to supervise its stock-loan desk in connection with improper stock-loan transactions.
Write to Kara Scannell at kara.scannell@wsj.com and Paul Davies at paul.davies@wsj.com
