A specialty options business bought by The
Charles Schwab Corp. last year has run afoul of the Securities and Exchange Commission for allegedly violating the registration provisions of securities laws.
In an administrative order filed Thursday, the SEC's Division of Enforcement said it was instituting administrative proceedings against OX Trading LLC, optionsXpress and former chief financial officer Thomas E. Stern. The commission alleges that OX Trading operated as an unregistered dealer from October 2009 to November 2010 and illegally engaged in securities transactions while not a member of a national securities association or an exchange.
Charles Schwab acquired optionsXpress Inc. in September. A company spokeswoman, Alison Wertheim, did not return calls Friday seeking comment.
According to the SEC's order, Mr. Stern terminated OX Trading's membership with the Chicago Board Options Exchange and ended the firm's broker-dealer registration with the SEC, although OX Trading quietly continued to conduct trading through a customer account at optionsXpress.
Mr. Stern, who was also OX Trading's chief compliance officer, later fabricated and backdated an allegedly exculpatory letter purporting to demonstrate that he had properly informed the CBOE that OX Trading would deregister and become a customer of optionsXpress, according to the SEC.
In statements from his BrokerCheck report, Mr. Stern denied the SEC's allegations.
“My colleagues and I proactively sought the advice of the experts at the SEC, and the SEC staff is now considering recommending charges against us for following that advice,” he said, according to the BrokerCheck profile. “We have cooperated with all facets of the investigation, and strongly disagree with the recommendation under consideration on both factual and legal bases. We deny the allegations and intend vigorously to defend against this matter on the merits if an enforcement proceeding is commenced.”
Mr. Stern was fired by optionsXpress in January because of “allegations related to the creation and contents of certain documents prepared or signed by Mr. Stern,” according to the BrokerCheck report.
“The Commission's complaint filed yesterday today against OX Trading alleges a rule violation that OX Trading failed to register as a broker-dealer for part of the time it was operating,” said Stephen Senderowitz, a spokesman for optionsXpress. “The complaint does not allege any customer harm or fraud.”
OX Trading recently was closed in anticipation of the implementation of the Volcker rule, said Mr. Senderowitz.
“At one point, OX Trading was registered as a broker dealer but then deregistered in 2009 because it believed that registration was not required based on the fact it was acting as a proprietary trading firm, had no customer accounts of its own, and didn't advertise for customers, among other reasons,” he said. “OX Trading's primary regulator, the CBOE, advised OX Trading that it disagreed with the company's decision to de-register, and thereafter OX Trading re-registered as a dealer. It remained registered until it recently ceased operations. “
The allegations against Mr. Stern relating to his post-registration conduct that are contained in the SEC's order, were self-reported by the company after an internal investigation it initiated, Mr. Senderowitz said. Mr. Stern was subsequently discharged.
Mr. Stern's attorney, Trace Schmeltz, was not available to comment on Friday afternoon.
