School Board Member Charged With Making $15 Million In Illegal Short Sales

After the Securities and Exchange Commission (SEC) charged a member of the District 225 school board with making $15 million from the illegal short selling of stocks, the Northbrook resident has hired Bernie Madoff’s former lawyer.

According to the charge filed last week, Jeffrey Wolfson, 58, allegedly sold declining stocks without following U.S. government rules surrounding such sales, allowing him to profit illegally while working as a broker-dealer and later as the principal trader at a Chicago broker-dealer that has since gone out of business. 

Wolfson is currently serving a four-year term on the school board of district 225, which includes the local high schools  and . His seat is up for election in 2013. 

“Since it’s not a matter of District 225, we don’t have any additional details to share,” said Karen Geddeis, director of public relations and communications for the school district.

According to Illinois law regarding school boards, a board member may become ineligible to hold public office if he or she is convicted of a felony, bribery or perjury, among other crimes.

Beyond illegally short-selling stocks, Wolfson also allegedly taught his brother, Robert Wolfson, among others, how to conduct illegal, or “naked” short sales, according to the SEC’s order. His brother, who lives in West Orange, NJ, is also charged in the civil complaint.

Together, the pair allegedly raked in some $17 million in illegal profits by short-selling stocks including Chipotle Mexican Grill Inc., Fairfax Financial Holdings Ltd., Novastar Financial Inc. and NYSE Group, according to the order.

“What I sell them is not guaranteed, it never gets delivered, it’s funny paper,” Wolfson allegedly said in a telephone conversation recorded by the SEC in October 2006.

According to a release sent to SEC newswires, Ira Lee Sorkin of Lowenstein, Sandler will represent Jeffrey Wolfson in court. Sorkin is most famous for representing Bernie Madoff, the hedge fund manager who was convicted of scamming clients out of $50 billion in an infamous Ponzi scheme.

"We are studying the charges against him, and we intend to defend the case," Sorkin told Patch on Thursday.

Wolfson will also be represented by Michael Wise of the Chicago-based firm Lawrence Kamin, Saunders & Uhlenlop LLC, according to the same release. Contacted Wednesday by Patch, Wise said he had no comment on the matter. 

“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,” George S. Canellos, Director of the SEC’s New York Regional Office, said in a press release. “The SEC is committed to recovering substantial ill-gotten proceeds made by traders who seek to circumvent important short selling regulations.”

If a federal judge finds them guilty, the brothers could be required to give up the money they made, pay some interest, or be suspended or barred from associating with any broker-dealer, among other penalties, according to the SEC’s charge.

According to his biography on the District 225 website, Wolfson serves on the board’s finance committee and has been a member of the Chicago Board Options Exchange since 1980. He also serves on the boards of the YMCA of Greater Chicago, The Children’s Memorial Research Center and the District 225 Foundation.