FINRA fined Southern California-based StockCross Financial Services $800,000 for short-selling without first borrowing or delivering transacted shares for settlement as required by the SEC's Regulation SHO, and for lacking an adequate supervisory system designed to ensure compliance with Regulation SHO.
Regulation SHO requires that firms close out all failures to deliver borrowed securities before continuing sales of the applicable share. In other words, naked shorting occurs when a seller transacts through this failure to deliver without closing out or making delivery to the buyer within a prescribed settlement period (usually three days), resulting in a situation wherein the short seller essentially sells shares that they don't actually own and fails to deliver securities to the buyer when delivery is due.
Pursuant to regulation, a firm must close out failures to deliver by purchasing or borrowing the securities and may not accept additional short sale orders in that security until the firm takes steps to close out the failure.
According to the report, StockCross Financial's systems to monitor and track its close-out obligations for short-sales was deficient, causing 1,826 failures to deliver errors and, because these violations went undetected, at least 4,132 short sales that were executed in violation of Regulation SHO (4,132 sales occurring during this period of unresolved failures to deliver).
FINRA also concluded that StockCross did not have a supervisory system in place nor written supervisory procedures designed to achieve compliance with Regulation SHO.
StockCross Financial is owned by David Gebbia, who is the husband of former Real Housewives of Beverly Hills star Carlton Gebbia. StockCross has a previous checkered history of arbitration claims related to reverse convertibles and structured products.
If you have invested with StockCross Financial Services, Inc., David Gebbia, or with any broker, financial adviser or brokerage firm whose sales of securities at a time when such transactions are prohibited by rule, as is the case in naked short selling, has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.