Two options traders that were charged by the Securities and Exchange Commission earlier this year with short selling violations have agreed to pay more than $14.5 million to settle the case.

The SEC found that brothers Jeffrey A. Wolfson and Robert A. Wolfson engaged in naked short selling by failing to locate shares involved in short sales and failing to close out the resulting failures to deliver.

The Wolfsons settled the SEC's administrative proceedings without admitting or denying the findings.

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 $9.5 million in illegal profits from their naked short-selling transactions, which they carried out from July 2006 to July 2007, the SEC alleged.

"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," said Andrew M. Calamari, acting director of the SEC's New York Regional Office.

Jeffrey Wolfson, 59, of Glencoe Ill., conducted illegal naked short sales while working as a broker-dealer and later as the principal trader at a Chicago-based brokerage firm that is no longer in business, according to the SEC. Meanwhile, Robert Wolfson, 57, of  south Egremont, Mass., conducted illegal naked short sales while trading in an account at New York-based broker-dealer Golden Anchor Trading II LLC, which also was charged by the SEC and agreed to the settlemen, according to the SECt. Jeffrey Wolfson generated approximately $8.8 million in net illicit trading profits, and Robert Wolfson and Golden Anchor made more than $700,000, the SEC said.

Jeffrey Wolfson is required to pay $13.425 million, which includes a $2.5 million penalty in addition to disgorgement of illegally obtained gains and prejudgment interest. Robert Wolfson and Golden Anchor are required to collectively pay $1.1 million in disgorgement of illegally obtained gains, prejudgment interest, and penalties. 

Jeffrey Wolfson is also suspended from working in the securities industry for 12 months, and Robert Wolfson is suspended for four months. Golden Anchor has been censured, and along with the Wolfsons is subject to a cease and desist order from committing or causing violations of the short sale rules they violated.

-Jim McConville