[ by Howard Haykin ] The SEC announced on Tuesday that 2 options traders who the Commission had charged earlier this year with short selling violations have agreed to pay over $14.5 million to settle the SEC charges. SEC Findings and Allegations. Brothers Jeffrey Wolfson and Robert Wolfson allegedly 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 about $9.5mn 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." -- Andrew Calamari, Acting Director of SEC’s NYRO.

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, a Chicago area resident, conducted illegal naked short sales while working as a broker-dealer himself and later as the principal trader at a Chicago-based B/D that is no longer in business.  Robert Wolfson, who lives in Massachusetts, conducted illegal naked short sales while trading in an account at Golden Anchor Trading II LLC, a NY-based broker-dealer 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. Settlement Terms and Conditions. The Wolfsons and Golden Anchor settled the SEC’s administrative proceedings without admitting or denying the findings.  Jeffrey Wolfson agrees to pay $13.425 million in penalties, 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 also received a 12-month suspension from the industry.  Robert Wolfson is suspended for 4 months. SEC NYRO Staff Credits. Investigation by: Steven Rawlings, Peter Altenbach, Daniel Marcus, and Layla Mayer. Litigation was led by Kevin McGrath. For further details, go to:   [SEC PR 2012-137, 7/17/12]. Additional Materials: [Order as to Jeffrey Wolfson] [Order as to Robert Wolfson and Golden Anchor Trading II, LLC]