The Securities and Exchange Commission filed charges against a former New York stock loan trader who was employed at Morgan Stanley (NYSE: MS) and Bank of America (NYSE: BAC) for periods of time. The suit claims Salvatore Zangari received kick-backs in excess of $100,000 in exchange for sending stock loan orders to brokerage firms that paid for the locating of stocks.
The SEC said in its filing that a Brooklyn, NY stock finding business, Clinton Management Ltd., paid Zangari cash for routing stock loan orders to those that paid the firm fees for locating stock.
Stock locations are usually down when trying to fulfill short sales of a particular hard to borrow issue. Basically, the firm will locate the stock for a client or brokerage, which in turn allows the short sale to take place. As opposed to naked shorting, which does not require shares of a stock to be located.
Zangari worked for Morgan Stanley from August 1998 till May 2005 and then moved onto Bank of America from May 2005 till October 2006. The claims alleges that for nearly two years, March 2004 through December 2005, Zangari took cash kickbacks to send Morgan Stanley and Bank of America stock loan orders to firms that paid the finder, Clinton Management Ltd.
The case is SEC v. Zangari, U.S. District Court, Eastern District of New York, No. 10-01058.
