Paulson Investment Company LLC has agreed to pay a fine of $135,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From August 2018 through December 2023, Paulson facilitated the execution of long sale orders in microcap over-the-counter (OTC) securities for certain of its institutional broker-dealer clients. Clients provided Paulson with “not-held” long sale orders for the OTC securities, granting the firm with time and price discretion to execute the orders.

The firm executed these orders through a series of proprietary short sales to the market throughout the day, later purchasing the security as principal at a different price to cover its short position and satisfy the original client orders – a practice known as trading on a “net trade” basis.

During this period, Paulson effected at least 15,000 short sale transactions representing approximately 64.5 billion shares for its own account without first borrowing the securities, entering into a bona fide arrangement to borrow the securities, or having reasonable grounds to believe the securities could be borrowed and delivered on the settlement date.

Therefore, Paulson violated Rule 203(b)(1) of Regulation SHO and FINRA Rule 2010.

From August 2018 through April 2024, Paulson’s supervisory system and written supervisory procedures (WSPs) were not reasonably designed to achieve compliance with Rule 203(b)(1) of Regulation SHO.

Specifically, the firm had no processes or procedures addressing the firm’s short selling activity, requiring traders to obtain locates in connection with that activity, or identifying the circumstances under which exemptions to the Locate Requirement may apply.

The firm also had no supervisory system, surveillance, or other review to monitor the firm’s compliance with the Locate Requirement for proprietary short sales.

Therefore, Paulson violated FINRA Rules 3110 and 2010.

The firm has agreed to a censure in addition to the $135,000 fine.

Paulson Investment Company LLC has been a FINRA member since 1971. Headquartered in Portland, Oregon, the firm has approximately 70 registered representatives across 13 branch offices. Paulson primarily engages in capital raising activities for private companies and also executes trades for retail and institutional customers.