U.S. securities regulators have charged online brokerage firm, optionsXpress, over its alleged involvement in what the regulator claims was abusive naked short selling.

The U.S. Securities and Exchange Commission alleges that the Chicago-based firm failed to satisfy its close-out obligations under short-selling rules by repeatedly engaging in a series of sham ‘reset’ transactions designed to give the illusion that the firm had purchased securities of like kind and quantity. It claims that the firm, and one of its customers engaged in these transactions in a number of securities, resulting in continuous failures to deliver.

“The resets were accomplished by optionsXpress facilitating its customers buying shares and simultaneously selling deep in-the-money call options that were essentially the economic equivalent of selling shares short. The purchase of shares created the illusion that the firm had satisfied the close-out obligation; however, the shares that were ostensibly purchased in the reset transactions were never actually delivered to the purchasers because on the same day the shares were ‘purchased’, the deep in-the-money calls were exercised, thereby effectively reselling the shares,” explains the SEC in an order. “These paired reset transactions were not bona fide purchases because their purpose was to perpetuate an open short position while giving the illusion of satisfying the delivery and close-out requirements.”

Along with the firm, and the customer, four of the firm’s executives are also facing allegations. Three of the brokerage’s executives have settled the charges against them, consenting to cease-and-desist orders. They neither admitted nor denied the SEC’s findings. The allegations against the others have not been proven.

According to the SEC’s order, the misconduct occurred from at least October 2008 to March 2010. In September 2011, optionsXpress became a wholly-owned subsidiary of The Charles Schwab Corporation.

Daniel Hawke, chief of the SEC’s market abuse unit, said that compliance with short selling rules “continues to be a high enforcement priority. Broker-dealers, their employees, and their customers must ensure that they comply with the close-out requirements of the short sale rules and regulations.”