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Apr 28

Broker and OTC market maker Wilson-Davis Co. fined by SEC for Reg SHO violations

In an administrative proceeding released on April 26, 2017, the SEC issued a cease and desist order (PDF) to brokerage and notorious OTC market maker Wilson Davis (Market maker ID: WDCO) for violations of Regulation SHO and ordered the company to pay $235,714.50 in disgorgement of profits and interest thereon and a $75,000 civil penalty. But the headline of a violation of short selling regulations obscures the fact that the trading in question was related to some of the biggest pump and dumps ever perpetrated, all run by AwesomePennyStocks or related websites.

There are a few details in the order that are key. First, Wilson-Davis had two separate trading groups: legitimate market makers and proprietary traders. From the SEC’s order linked above:

WDCO was comprised of two trading groups: a retail trading group and a proprietary trading group. The activity that is the subject of this Order pertains to WDCO’s proprietary trading group. Traders in the proprietary trading group had agreements with WDCO under which the traders were allowed to use WDCO funds for proprietary trades of securities and would split their profits with WDCO in accordance with their agreements.

Not mentioned in the order is that one of the traders was Anthony “Fat Tony” Kerrigone, who has already been sanctioned by the SEC in December 2016 (PDF). From that administrative order:

Kerrigone, a proprietary trader at WDCO, is a WDCO representative who caused WDCO’s Regulation SHO violations by executing certain short sales of securities on behalf of WDCO without WDCO being engaged in bona-fide market making activity and without WDCO obtaining a locate prior to effecting the short sales. Kerrigone improperly relied on the bona-fide market making exception for certain short sale trades without having a reasonably sufficient understanding of the rule, without sufficiently discussing with anyone at WDCO whether such trading qualified WDCO for the bona-fide market making exception, and by conducting such trading in a manner that closely resembled examples explicitly identified by the Commission— years before the conduct at issue—as activity that generally is not bona-fide market making.

Anthony Kerrigone was ordered to pay disgorgement of profits (and interest thereon) of $550,000.50 and a civil penalty of $50,000. Prior to the SEC order, Kerrigone (CRD#: 2612581) was also cited by FINRA back in November 2015. From FINRA BrokerCheck (FINRA does not allow direct linking so you have to search for Kerrigone by his name):

Initiated By FINRA
Allegations
Without admitting or denying the findings, Kerrigone consented to the sanctions and to the entry of findings that he caused his member firm to violate Rule 203(b)(1) of SEC Regulation SHO when on occasions, Kerrigone placed orders to sell short low-priced stocks through the firm’s proprietary trading account and failed to locate the securities, claiming the market marker exemption to the locate requirements. The findings stated that the market maker exemption was not available to the firm because Kerrigone was not engaging in bona-fide market marking activities in these securities. The firm generated over $158,239 in profits from these short transactions.
Resolution
Acceptance, Waiver & Consent(AWC)
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount: $10,000.00
Sanctions
Suspension
Duration: six months
Start Date: 12/7/2015
End Date: 6/6/2016

Surprisingly, Kerrigone was able to get another job in the industry after that suspension and according to BrokerCheck he still holds it, working for BMA Securities, another OTC market maker (Market maker ID: BMAS).

The Pumps & Dumps

Listed in the SEC order are five examples of stocks where Wilson Davis improperly sold short stocks using the market maker exemption while not acting as a bona fide market maker: Amwest Imaging (AMWI), North Springs Resources Corp (NSRS), Sunpeaks Ventures (SNPK), Great Wall Builders (GWBU), and Pristine Solutions (PRTN). AMWI was promoted in December 2011 by Crazypennystocks.com and related websites (a predecessor promoter to Awesomepennystocks). NSRS was promoted in January and February of 2012 by Crazypennystocks.com. See synopses of these and other big promotions of 2011/2012. SNPK was promoted in April 2012 by Awesomepennystocks-related websites. GWBU was promoted by Awesomepennystocks in June 2012. See also this article on GWBU manipulation. PRTN was promoted by Awesomepennystocks in September/October 2012. Infitialis wrote an excellent article on SeekingAlpha at the time about the manipulation of PRTN and explicitly linked Wilson-Davis to the PRTN manipulation

That Infitialis article in particular does a great job of explaining some of how Anthony “Fat Tony” Kerrigone allegedly traded Awesoempennystocks pumps while at Wilson-Davis. From that article:

We also know that one specific broker dealer Wilson Davis & Company is continually engaged in showing abnormally large bid sizes on every single APS scam since 2010.

The most obvious question to ask is why? Why would WDCO go out of its way to display such larger orders if their true intention was to buy the shares. The obvious answer is that WDCO is not trying to buy shares they are trying to manipulate the stock while other market makers such as ATDF liquidate shares. These transactions occur simultaneously often serendipitously:

  1. APS Stock begins to decline
  2. WDCO shows up with an abnormally sized bid, stock stabilizes
  3. ATDF shows up on the offer and sells into the buying generated by WDCO.

This behavior is described in the SEC order as WDCO updating its bids for stocks but having a very high offer and then short-selling through other market makers (“While posting an offer quotation that was not at or near the best offer, WDCO executed short sales at prices that were substantially away from its posted quotation.”). Of course, that SEC order makes no mention of manipulative bid support, yet that is something that is well-documented (most traders who traded Awesomepennystocks pumps will recall this and this is documented on numerous blogs and tweets). For example, here is a post about manipulation on GWBU that shows multiple screenshots of Wilson-Davis (WDCO) displaying huge bids. Here are screenshots of big bids by WDCO on NSRS. I have copied just two of those screenshots below in case the original website is taken down. Now, I obviously cannot prove the manipulative intent of posting large bids on these stock promotions, but I cannot think of any other explanation. This begs the question: why did the SEC not sue Wilson-Davis and Anthony Kerrigone for market manipulation? I can only hope that the SEC is working on that but settled on the lesser Reg SHO violation charges rather than put everything into one big lawsuit.

Just for fun, here is WDCO showing absurdly large offers on a non-Awesomepennystocks pump (I make no commentary during the video so just mute it if you do not want to hear the music I was listening to at the time):

 

Disclaimer. No position in any stocks mentioned and I have no relationship with anyone mentioned in this post. I traded (both long and short) most if not all of the stocks mentioned in this post at the time they were promoted. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

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