In the Matter of Jeffrey A. Wolfson et al., Admin. Proc. No. 3-14726. On July 17, 2012, the SEC announced that brothers Jeffrey A. Wolfson and Robert A. Wolfson, both charged earlier this year with short selling violations, agreed to pay $14.5 million to settle the charges. The administrative proceedings arose out of violations of the locate and close-out requirements of Regulation SHO of the Securities Exchange Act. Jeffrey and Robert Wolfson violated these requirements by taking advantage of an exemption to the locate rules to which they and their firm were not entitled and engaged in hundreds of improper transactions that caused large persistent fail to deliver positions in threshold securities generating $15.6 million in illicit trading profits that, after direct transaction costs, resulted in almost $9 million in net illicit trading profits.
The SEC adopted Reg. SHO in an effort to reduce fails to deliver and to address potentially abusive “naked” short selling. Fails to deliver occur when a seller fails to deliver securities to the buyer when delivery is due. Generally, investors complete or settle their security transactions within three settlement days. In a “naked” short sale, the seller does not own, and does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard three-day settlement period. As a result, the seller fails to deliver the securities to the buyer when delivery is due.
Both the Wolfsons settled without admitting or denying the charges. Jeffrey Wolfson will pay $13.425 million, which includes a $2.5 million penalty in addition to disgorgement and prejudgment interest. In addition, Jeffrey Wolfson is suspended from the securities industry for 12 months. Robert Wolfson and his business Golden Anchor are required to pay $1.1 million collectively in disgorgement and prejudgment interest, and penalties. Robert Wolfson is suspended from working in the securities industry for 4 months. Golden Anchor has been censured, and like the Wolfsons, is subject to a cease and desist order from committing or causing violations of the short sale rules they violated.