What's really funny, and odd about this -- at the same time -- is that this is the very strategy Madoff was thought to some how be carrying off (by those casually observing Madoff prospectii over the long run). Madoff claimed to profit from various option strategies, including his infamous buy-write arrangements.
Madoff is one reason why the regs were updated in 2003. Then 2008 came, the financial crisis tightened the regs to eliminate the synthetic trade loophole, which is what these guys were doing.
But Madoff wasn't even trading! That's the sad part of all this. Nobody in the markets ever actually saw his volume on the tape.
This is one of those cases where the SEC is setting an example to warn broker/dealers.
They said they were going to prosecute synthetic option trades with a net short bias. They said they were going to make it illegal.
And so, they did. And so they have.