Jefferies & Company Background Information

Brokerage firm Jefferies & Co. Inc. was fined $5.5 million by the FINRA for providing more than $1.6 million in improper gifts and entertainment to equity traders employed by Fidelity.

FINRA officials said that, between 2002 and 2004, Jefferies showered mutual fund traders with gifts, entertainment and other perk’s in excess of $1.6 million, including chartered air travel, expensive hotels and restaurants, concerts, lavish golf weekends and other travel and expensive bottles of wine. Provided also were trips to Wimbledon, The Super Bowl, the U.S. Tennis Open and other sporting events.

One Fidelity trader was given a private chartered flight to Bermuda at a cost exceeding $17,000, and another island trip for more than $47,000, the FINRA claimed adding that the Jefferies trader also reportedly paid more than $225,000 for private air charter flights and lodging, as much as $5,000 per night at the Bellagio Hotel in Las Vegas and two villas he used at the Esperanza Resort in Cabo San Lucas.

In 2004, the Jefferies trader apparently paid more than $125,000 for Super Bowl weekend-related expenses in Houston, which included Maxim and Playboy pre-game parties, a car service, private round-trip chartered flights, lodging and tickets to the game.

FINRA rules limit gifts by firms and associated persons to customers to $100 per recipient per year. “The value of improper gifts and entertainment in this case is unprecedented,” said the FINRA’s head of enforcement, “FINRA’s gift and gratuity rules were designed to prevent just the sort of conduct at issue here, which threatens the integrity of the relationship between a brokerage firm and its institutional customer.”

The FINRA also permanently barred the Jefferies trader from associating with any FINRA-registered firm in any capacity and fined his former supervisor $50,000 and suspended him from supervision for three months. It also ordered the firm to retain an independent consultant to review of the firm’s policies, procedures and training relating to gifts and entertainment. Jefferies and its former agents neither admitted nor denied the allegations, but consented to the FINRA’s sanctions.

Jefferies & Company, Inc. was censured and fined $125,000 by the FINRA and required to revise its written supervisory procedures, including regarding frontrunning, trade reporting and long/short sales. Without admitting or denying the allegations, the firm consented to the sanctions.

The FINRA said that, among other violations, Jefferies failed to immediately display customer limit orders in FINRAAQ securities in its public quotation when such orders were at a price that would have improved the firm’s bid or offer in each such security. The FINRA also found that the firm failed to properly record certain orders. The findings also stated that Jefferies failed to properly accept or decline ineligible securities within 20 minutes after execution.

Jefferies & Company, Inc. was censured and fined $27,500 by the FINRA and was required to revise its supervisory procedures designed to prevent violations of securities laws and regulations concerning trade reporting, best execution and limit order display. Without admitting or denying the allegations, the firm consented to the sanctions.

The FINRA said that Jefferies failed to report certain transactions in a timely manner, failed to designate last sale reports and failed to properly transmit the time of execution as required under the FINRA’s Marketplace Rules.