Companies to pay to settle SEC 'naked' stock short-sale case

— -- The Securities and Exchange Commission for the first time has enforced new rules intended to limit a practice known as "naked" short-selling.

The SEC said Wednesday that some traders and their firms have agreed to settle charges that they violated the rules without admitting or denying guilt.

The rules were put in place last year at the height of the financial crisis, and the SEC made them permanent last month.

The agency says New York-based Steven Hazan and Hazan Capital Management have agreed to pay $3 million to settle the charges, while Chicago-based TJM Proprietary Trading agreed to a penalty of $541,000.

The two firms were charged with circumventing a rule that requires brokers to promptly produce shares in naked short-selling transactions. Naked short sales involve bets against a share price by investors who don't own the shares at the time of the sale. Such sales can depress the price of a company's stock.

Michael Bachner, a lawyer for Hazan, said his client decided to settle because "the cost of defending these actions would have been similar" to the amount of the fines and penalties paid. A TJM lawyer declined comment.

Short-sellers borrow a company's shares, sell them, then buy them back when the stock falls and return them to the lender — pocketing the difference in price. Naked short-selling occurs when sellers don't borrow the shares before selling them, then look to cover positions some time after the sale.