(January 8 – 18:40 ET) — NASD Regulation Inc., today announced that an NASDR hearing panel has barred John Fiero, expelled his firm, Fiero Brothers Inc. and ordered a fine of US$1 million for engaging in a fraudulent short selling, extortion and manipulation scheme.

Back on Feb. 6, 1998, NASDR filed a complaint against Fiero and other co-conspirators alleging that they colluded to drive down the price of 10 Nasdaq securities underwritten by now-defunct Hanover Sterling & Co. during January and February 1995, through illegal short selling.

This “bear raid” scheme involved Fiero and others obtaining nearly 1 million shares, units and warrants from Hanover Sterling at below market prices through the use of threats and coercion to cover their illegally-created short positions. Ultimately, the short selling scheme led to the failure of Hanover Sterling on Feb. 24, 1995, which was quickly followed by the collapse of its clearing firm, Adler, Coleman Clearing Corp.

In the decision, the panel found that Fiero participated in an extortion scheme by purchasing US$12.1 million of securities from Hanover, at prices US$866,500 below the then-prevailing market price. Fiero used these securities to cover his firm’s short positions, and resold the rest, primarily to other short sellers involved in the scheme. Hanover agreed to sell the discounted securities to Fiero in attempt to end the shorting of the stocks.

The panel also found that Fiero violated short selling rules from Jan. 20 through Feb. 23, 1995 by selling a stock short without ensuring that the stock can be borrowed by the settlement date. The panel concluded that Fiero manipulated the market for the Hanover securities through his purchases and resale of the extorted stock and his illegal, naked short selling.

Unless the decision is appealed to NASDR’s National Adjudicatory Council, or called for review by the NAC, it becomes final after 45 days.