The Securities and Exchange Commission on Monday charged the Schwab-owned online options firm optionsXpress, as well as four officials at the firm and a customer, in an alleged abusive naked short selling scheme.
The SEC’s Division of Enforcement claims the Chicago-based firm “failed to satisfy its close-out obligations under Regulation SHO by repeatedly engaging in a series of sham ‘reset’ transactions designed to give the illusion that the firm had purchased securities of like kind and quantity.”
The firm and a customer, Jonathan Feldman, engaged in these “sham reset transactions in a number of securities, resulting in continuous failures to deliver,” according to the SEC’s complaint.
Regulation SHO requires the delivery of equity securities to a registered clearing agency when delivery is due, generally three days after the trade date in what’s known as “T+3”. If no delivery is made by that time, the firm must purchase or borrow the securities to close out the failure-to-deliver position by no later than the beginning of regular trading hours on the next day (T+4).
The former chief financial officer at optionsXpress, Thomas Stern, was named in the SEC’s administrative proceeding along with optionsXpress and Feldman. Three other officials—the head of trading and customer service, Peter Bottini, and the compliance officers Phillip Hoeh and Kevin Strine—were named in a separate administrative proceeding and settled with the SEC.