For five years Citadel incorrectly marked short sales as long sales and vice versa according to the SEC’s latest report.
Retail investors have created an uproar on social media for two primary reasons.
- Citadel was only fined $7 million — which investors allege is merely a ‘pay to play’ fine.
- Citadel’s naked short selling “conspiracies” ended not being conspiracies, despite Bloomberg and WSJ journalists idolizing Citadel’s Ken Griffin.
For years now, retail investors have raised concerns over Citadel’s hedge fund and market making power, claiming there is simply too much conflicts of interest.
The Securities and Exchange Commission says the market maker violated a provision of Regulation SHO, the regulatory framework designed to address abusive short selling practices, which requires broker-dealers to mark sale orders as long, short, or short exempt.
According to the SEC’s order, for a five-year period, it is estimated that Citadel Securities incorrectly marked millions of orders, inaccurately denoting that certain short sales were long sales and vice versa.
“Compliance with the order marking requirements of Reg SHO is a key component of regulatory efforts to curtail abusive market practices, including ‘naked’ short selling,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement.
“This action against Citadel Securities demonstrates that a broker-dealer’s failure to comply with the requirements of Reg SHO can have negative downstream consequences on the accuracy of the firm’s electronic records, including its electronic blue sheet reporting, depriving the Commission of important information about the markets it regulates.”
Investors on social media say Citadel’s punishment is miniscule compared to the institutions massive gains it claims to have made, especially in the past years.
Keep in mind, Madoff never lost either.
Is Citadel in Control of Regulators?
David Inggs is Global Head of Operations at Citadel and is responsible for all products across asset servicing, billing, cash management, clearing, and has a board seat at the DTCC.
The conflict of interest has raised big concerns amongst the retail investor community online as Citadel has been a leading and one of the biggest short sellers in the stock market.
On January 28th, 2021, The DTCC waived $9.7 billion of collateral deposit, limiting institutional losses and limiting retail profits during the ‘meme stock’ frenzy.
The organization allowed several naked shares to flood the market prior to the massive jump in share prices only to help financial institutions in the end.
Citadel and Melvin Capital who shut down last year, lost billions during the event.
Melvin struggled throughout 2022 from its severe losses in GameStop the year prior.
Had the DTCC not stepped in, the hedge fund would have closed that same year.
“Anyone shorting AMC or GameStop is out of their mind. Wallstreetbets is too powerful, and trying to bet against them right now is just giving them more ammo”, said Jim Cramer at the time.
Since the halt of ‘meme stocks’, the retail community has been uncovering a variety of conflicts of interest too big to ignore.
Now the SEC has confirmed Citadel has been manipulating the market for years now, just as retail investors have claimed since the events in 2021.
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