Option traders pay $14.5M to settle SEC's allegations

Michael P. Tremoglie Jul. 20, 2012, 5:54am

NEW YORK (Legal Newsline) - The Securities and Exchange Commission announced Tuesday that two options traders previously accused of short selling violations have agreed to pay more than $14.5 million to settle the case against them.

The SEC alleged that brothers Jeffrey and Robert Wolfson "engaged in naked short selling by failing to locate shares involved in short sales and failing to close out the resulting failures to deliver. SEC rules require short sellers to locate shares to borrow before selling them short, and they must purchase securities to close out their failures to deliver by a specified date."

According to the SEC, the Wolfsons made illegal naked short sales from July 2006 to July 2007. Jeffrey allegedly made illegal naked short sales while working as a broker-dealer and later as the principal trader at a Chicago-based brokerage firm that is no longer in business.

The SEC said Robert conducted illegal naked short sales while trading in an account at New York-based broker-dealer Golden Anchor Trading II LLC, which also was charged by the SEC and agreed to the settlement.

The Wolfsons made approximately $9.5 million in illegal profits from their naked short selling transactions, the SEC said. Jeffrey generated approximately $8.8 million and Robert, as well as Golden Anchor, made more than $700,000, the SEC said.

"The Wolfsons attempted to game short-selling restrictions in order to win millions of dollars in illegal profits. This settlement deprives them of those profits and more," said Andrew Calamari, Acting Director of the SEC's New York Regional Office.

The Wolfsons and Golden Anchor settled without admitting or denying guilt. Jeffrey will pay $13,425,000, including a $2.5 million penalty in addition to disgorgement and prejudgment interest. Robert and Golden Anchor will pay $1.1 million in disgorgement, prejudgment interest and penalties.

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