Short Selling Brothers Fined $14.5m
The Securities and Exchange Commission has announced that two options traders who the agency charged earlier this year with short selling violations have agreed to pay more than $14.5 million to settle the case against them.
An SEC investigation found that brothers Jeffrey A. Wolfson and Robert A. 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. The Wolfsons made approximately $9.5 million in illegal profits from their naked short selling transactions.
“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 M. Calamari, Acting Director of the SEC’s New York Regional Office.
According to the SEC’s orders settling the administrative proceedings against the Wolfsons, they made illegal naked short sales from July 2006 to July 2007. Jeffrey Wolfson, who lives in the Chicago area, conducted illegal naked short sales while working as a broker-dealer himself and later as the principal trader at a Chicago-based brokerage firm that is no longer in business. Robert Wolfson, who lives in Massachusetts, 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. Jeffrey Wolfson generated approximately $8.8 million in net illicit trading profits, and Robert Wolfson and Golden Anchor made more than $700,000.
The Wolfsons and Golden Anchor settled the SEC’s administrative proceedings without admitting or denying the findings. Jeffrey Wolfson is required to pay $13.425 million, which includes a $2.5 million penalty in addition to disgorgement and prejudgment interest. Robert Wolfson and Golden Anchor are required to collectively pay $1.1 million in disgorgement, prejudgment interest, and penalties. Jeffrey Wolfson is suspended from working in the securities industry for 12 months, and Robert Wolfson is suspended for four months. Golden Anchor has been censured, and along with the Wolfsons is subject to a cease and desist order from committing or causing violations of the short sale rules they violated.
The SEC’s investigation was conducted in the New York Regional Office by Steven Rawlings, Peter Altenbach, Daniel Marcus, and Layla Mayer. The litigation was led by Kevin McGrath. The SEC acknowledges the assistance of the Chicago Board Options Exchange and the Financial Industry Regulatory Authority in this matter.