January 31, 2012, the SEC charged against two brothers for engaging in naked short selling in violation of Rule 203(b)(1) and (3) of Regulation SHO. While short selling is legal, sellers must locate shares to borrow before selling them short and must deliver borrowed shares before a specified date. Jeff Wolfson, and his brother Robert, allegedly generated $17 million in ill gotten gains from naked short selling between July 2006 – July 2007 while working as a broker dealer. “By engaging in naked short selling, the Wolfsons had a major advantage over competitors who complied with the law and incurred the costs associated with actually borrowing the securities,” said George S. Canellos, Director of the SEC’s New York Regional Office.
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