Jefferies Group Inc. (JEF) agreed to pay about $2 million to resolve
Financial Industry Regulatory Authority claims that three employees failed to disclose conflicts of interest while selling auction-rate securities.
Brokers for New York-based Jefferies bought and sold ARS for eight customers from August 2007 through March 2008 without telling them about additional compensation they would earn, Finra said today in a statement. The brokers also didn’t tell the clients they could have purchased comparable or similar securities with higher yields, the brokerage regulator said.
“In exercising discretion over customers’ accounts, Jefferies was obligated to ensure that its customers were aware of material facts about the transactions,” Finra enforcement chief Brad Bennett said in the statement.
Jefferies will pay a $1.5 million fine and return $425,000 in fees and commissions that weren’t disclosed to customers, Finra said. Two former Jefferies brokers were also sanctioned. Anthony Russo agreed to a $20,000 fine and five-day suspension, and Robert D’Addario got a 10-day suspension and a $25,000 fine.
Finra also filed a complaint against a third Jefferies broker, Richard Morrison, for his role in the matter, according to the statement.
“We are pleased to have reached an agreement with Finra and to have this matter behind us,” Jefferies spokesman Tom Tarrant said in a statement.
Russo and D’Addario, who no longer work at Jefferies, didn’t admit or deny the allegations in settling the claims, Finra said. David Spears, an attorney for Russo, and Richard Weinberg, D’Addario’s lawyer, didn’t immediately return phone calls today. Morrison declined to comment.
Voluntary Buyback
In December 2008, Jefferies spent about $68 million in a partial voluntary buyback of ARS held in retail accounts. The company agreed to repurchase additional securities held in retail accounts as part of today’s settlement, Finra said.
Jefferies began repaying customers in July 2008 for commissions it received on ARS that froze, remitting about $868,000 as of October 2010.
Federal and state regulators have sanctioned several banks for selling auction-rate securities as safe, cash-like investments. Banks managing auctions abandoned the $330 billion market in February 2008, stranding thousands of investors who could no longer unload the securities.
