SEC charges Jefferies with failure to control rogue bond traders
Company will pay $25 million minimum
The Securities and Exchange Commission today charged global investment bank and brokerage firm Jefferies with failing to supervise its employees on its mortgage-backed securities desk who were lying to customers about pricing.
In a rare ruling last week, one such trader was convicted for said activity. Today's announcement means he did not act alone.
Christy Romero, Special Inspector General for the Troubled Asset Relief Program, convicted Jesse Litvak, a registered broker-dealer and former managing director at New York investment bank Jefferies & Co., of multiple offenses involving a scheme to defraud customers trading in residential mortgage-backed securities.
The jury convicted Litvak on all counts, including ten counts of securities fraud, one count of defrauding TARP, and four counts of making false statements within the jurisdiction of the United States Government.
"An SEC investigation found that Jefferies representatives including Jesse Litvak, who the SEC charged with securities fraud last year, lied to customers about the prices that the firm paid for certain mortgage-backed securities, thus misleading them about the true amount of profits being earned by the firm in its trading," said the SEC.
"Jefferies’ policy required supervisors to review the electronic communications of traders and salespeople in order to flag any untrue or misleading information provided customers," the statement adds. "However, the policy was not implemented in a way to detect misrepresentations about price. "
Jefferies agreed to pay $25 million to settle the SEC’s charges as well as a parallel action announced today by the U.S. Attorney's Office for the District of Connecticut.
Additionally, Jefferies agreed to settle the charges by making payments to customers totaling more than $11 million, which represents not just the ill-gotten gains of $4.2 million but the full amount of profits earned by the firm on these trades.
Jefferies also agreed to pay a $4.2 million penalty to the SEC and an additional $9.8 million as part of a non-prosecution agreement with the U.S. Attorney’s office.