Amro had lent Sedona $2.5 million in 2000 under an agreement that allowed Amro to convert the debt into stock at prevailing prices.
The lawsuit alleges that Rhino engaged in illegal short sales to depress Sedona prices and maximize those conversion rights, using the new shares to close out the earlier trades.
In a short sale, investors borrow stocks and sell them, hoping to replace them later at bargain prices. It is not illegal unless investors sell shares that they have not borrowed, in so-called naked short sales.
The SEC's complaint quoted Refco tape recordings on which defendant Jacob Spinner, a Refco broker, boasted: "Want to short something illegally for 12 months? Contact me."
Refco filed for bankruptcy protection in October amid allegations of accounting irregularities. The firm is being liquidated.
Spinner and former Refco broker Mottes Drillman now work at Pond Securities, according to the SEC. The lawsuit also named Pond's president, Ezra Birnbaum; its chief compliance officer, Shaye Hirsch; and former Refco broker Jeffrey Graham.
A woman who answered the phone yesterday at Pond Securities in Cedarhurst, N.Y., said the defendants had no comment.
Graham could not be reached.
Andreas Badian, a Rhino principal and a defendant, initiated the illegal transactions, the SEC alleged.
Badian's attorney did not return phone calls.
Thomas Badian, Rhino's president and Andreas' brother, agreed to pay $1 million to settle allegations of naked short selling of Sedona shares in 2003, without admitting or denying the SEC charges.
Yesterday's lawsuit "was based on information that was obtained since that first action," said James Coffman, an SEC assistant director.
Contact staff writer Todd Mason at 215-854-5679 or tmason@phillynews.com.
