Van der Moolen Finds Friendship Costly

Ketchum did not identity any of the firms under investigation. But he said some of the violations uncovered by the NYSE involved the inappropriate use of finders to arrange stock loans.

Stock lending, while profitable, long has been viewed as a Wall Street backwater. Hedge funds often complain there's little transparency in the operation of a stock-lending desk and Wall Street firms have great freedom in setting the terms of loans. And hedge funds and other traders looking to a short a stock have few options but to comply with the terms set down by Wall Street.

In a short sale, traders borrow stock from Wall Street with the hope of buying back the stock at a lower price in the open market. The trader then returns the cheaper shares to the broker, pocketing the difference.

On Monday, Van der Moolen rose 14 cents to $6.98.

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