AD08-53 Victorian share trader to face ASIC short selling...

AD08-53 Victorian share trader to face ASIC short selling charges

Thursday 6 November 2008


Mr Giovanni Spagnolo of Northcote, Victoria, appeared today in the Melbourne Magistrates’ Court on five short selling charges brought by ASIC.

ASIC alleges that between 28 May and 24 October 2007, Mr Spagnolo sold shares and options that he did not own, contrary to Section 1020B(2) of the Corporations Act, in a practice known as ‘short selling’.

The five instances relied upon by ASIC were:
1,850,000 shares in Rimfire Pacific Mining NL;
13,677,346 shares in Harrington Group Ltd;
1,176,790 shares in QR Sciences Holdings Ltd;
150,000 options in QR Sciences Holdings Ltd; and
615,385 shares in Mindax Ltd.

ASIC alleges that in each case, Mr Spagnolo applied for shares and options in capital raisings by the companies. Before they were issued, he agreed to sell them on the stock exchange. Mr Spagnolo failed to deliver the shares and options on the due date for settlement.

Mr Spagnolo’s conduct came to ASIC’s attention via a referral from the Australian Securities Exchange (ASX).

Mr Spagnolo faces a maximum penalty for each offence of six months imprisonment and a fine of up to $2,750 under section 1020B(2) of the Corporations Act.

The matter will return to the Melbourne Magistrates’ Court on 11 December 2008.

The Commonwealth Director of Public Prosecutions is prosecuting the matter.

Background
Naked short selling is the practice of selling shares without title. Generally the trade fails to settle on the due date (T+3). The seller will obtain the shares at a later time to complete the sale obligation. If the share price falls in between the short sale and the time at which seller buys the shares to close the trade, the seller makes a profit.

Under section 1020B(2) of the Corporations Act, a person must only sell shares, share options and certain other financial products to a buyer if, at the time of the sale the person has a presently exercisable and unconditional right to vest the products in the buyer.

The section is intended to reinforce the importance of settlement of stock exchange trades on the due date (T+3).

In a covered short sale, the seller will have borrowed the share and will be able to settle the sale on time. The seller will need to buy the share at a later time to repay the borrower.

ASIC banned all covered short sales from 21 September 2008. It expects to release the ban for non-financial stocks on 19 November 2008 and will continue the ban for financial stocks until 27 January 2009 [refer to ASIC MR 08-210 ASIC extends ban on covered short selling]. There will be no change to the law restricting naked short sales.
ASIC Website: Printed 07/11/2008
NOTE

Robina triathlon on Sunday 16th November Fooman and co competing and hope to see others there. Raby Bay was a great success.