NEW YORK, June 10 (Reuters) - A Securities and Exchange Commission judge has ordered optionsXpress, its former chief financial officer and a customer to pay a total of $4.8 million in fines and to return $4.2 million for illegally selling shares they did not hold.
The order was posted late Friday on the SEC’s website.
A lawyer for Charles Schwab Corp, which bought optionsXpress in 2011 after the alleged violations occurred, said that optionsXpress “respectfully disagrees” with the ruling and is considering an appeal.
“There was no naked short selling in this case,” Stephen Senderowitz, a lawyer representing optionsXpress, said in an email to Reuters.
The judge charged optionsXpress, former CFO Thomas Stern and customer Jonathan Feldman in April 2012 for naked short selling in options of companies that included American International Group, Sears Holdings Corp and Under Armour Inc between late 2008 and March of 2010.
The online brokerage was ordered to pay a civil penalty of $2 million and to disgorge to the government $1.6 million; its former CFO Stern was fined a $75,000 civil penalty. Feldman was ordered to pay a $2 million civil penalty and to disgorge $2.66 million.
Naked short-selling involves selling shares without first borrowing them, a violation of Regulation SHO that requires people making short trades to ensure that they will buy or borrow stock they don’t own to ensure delivery within three days of a trade.
The sham transactions occurred repeatedly with knowledge from some brokerage officials, the judge found.
CBOE Holdings, which owns the biggest options exchange where many of the trades occurred, said last month that it expects to be penalized as much as $10 million for failing to enforce its regulatory obligations. The SEC inquiry focuses on its handling of the trades, people familiar have told CBOE.
When it brought the charges against the broker and its customer more than a year ago, The SEC said three other officials associated with optionsXpress had settled in separate administrative proceedings without admitting or denying its findings.
Senderowitz, the lawyer representing optionsXpress, said the firm had fulfilled its obligations, and there was no downward price effect on the markets. He said the regulator should have clarified its rule on short selling to make it plain that the trades at issue were not allowed.