Board member charged with fraud

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Updated: March 17, 2012 8:22AM

A Glenbrook School District 225 school board member and Northbrook resident faces federal charges that he profited more than $17 million from improperly trading shares.

The U.S. Securities and Exchange Commission alleged Jeffrey Wolfson and his brother, Robert Wolfson, sold borrowed shares in hopes of profiting from declining prices.

Called naked short selling, while the transaction is legal, SEC rules require sellers to locate shares to borrow before selling them short, according to a SEC release.

Naked short selling also occurs without borrowing the securities to make delivery.

The brothers neither located the stock before the sale, nor did they deliver the shares when sold or make a real purchase of the stock. Jeffrey Wolfson said in a recorded telephone conversation, “What I sell them is not guaranteed, it never gets delivered. It’s funny paper,” stated the SEC, adding the transactions were July 2006 to July 2007.

The SEC alleged Wolfson and his brother, who lives in New York, generated more than $17 million in “ill-gotten gains” from naked short selling involving such stocks as Chipotle Mexican Grill Inc., Fairfax Financial Holdings Ltd., Novastar Financial Inc. and NYSE Group.

Wolfson engaged in illegal short sales while working as a Chicago broker-dealer and later as the principal trader at a Chicago broker-dealer no longer in business.

“He also taught his brother and others how to do it,” the release stated.

Wolfson, 58, responded to questions before Monday night’s school board meeting at Glenbrook North High School in Northbrook.

“I’m fighting these charges vigorously. That’s all my attorney wants me to say, but the government is always right, right? Yes, I’m being facetious,” he said.

“I’ll serve here until the school board decides I shouldn’t.”

School spokeswoman Jennifer Zimmerman said, “This is not a School District 225 matter, so we really have nothing more to say,”

His brother conducted illegal naked short sales while trading through an account at New York-based broker-dealer Golden Anchor Trading II LLC that also has been charged in the SEC’s enforcement action. The firm has changed its name to Barabino Trading LLC.

“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.

“The SEC is committed to recovering substantial ill-gotten proceeds made by traders who seek to circumvent important short selling regulations.”

If Wolfson violated SEC rules, he could be ordered to repay the gains plus a fine and be barred as a registered broker-dealer, according to the SEC.

He has been an active member of the Chicago Board Options Exchange since 1980.

Wolfson’s term on the District 225 School Board is 2009 to 2013, and he works on the Finance Committee.

He is president and founder of the Linda and Jeffrey Wolfson Foundation that benefits children and educational causes.

He currently serves on boards of the YMCA of Greater Chicago, Children’s Memorial Research Center and the District 225 Foundation, of which he is a founding member.

He was treasurer of the successful 2006 pro-referendum community committee VOTE.

He also is a member of the Booster Club, the Choir Parents Organization and the Men of GBN.

Wolfson lives at 2879 Woodmere Drive, Northbrook.