Jefferies Investigated By SEC For Mortgage Security Fraud

Jefferies Richard Handler
Richard Handler

The federal investigations into possible mortgage securities fraud in the 2007-2010 period continue, and are not limited to financial institutions. The Securities and Exchange Commission announced today that they have expanded their investigation into alleged fraud over mortgage-backed securities at Jefferies Group LLC (NYSE:JEF). The SEC claims Jefferies inadequately supervised its mortgage-backed securities traders during the financial crisis of 2008 to 2011.

Jefferies Group LLC (NYSE:JEF) has a policy requiring trading desk supervisors to review electronic communications of traders and salespeople to catch and flag incorrect information given to customers. However, the SEC alleges that Jefferies supervisory employees willfully ignored or insufficiently implemented the review policy.

Statement from SEC

The SEC pulled no punches in its statement. “Had Jefferies better targeted its supervision to the risks faced by its mortgage-backed securities desk, many of the misstatements made by its employees could have been caught,” commented Andrew J. Ceresney, director of the SEC’s Division of Enforcement.

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Jefferies Group LLC (NYSE:JEF) declined to comment when contacted by the media.

Jefferies’ trader Litvak case

Former Jefferies trader Jesse Litvak was found guilty of violating federal securities laws in a trial decided just last week. Litvak was accused of intentionally telling customers incorrect information regarding the prices of residential mortgage-backed bonds he was trading and keeping the difference.

Jefferies Group LLC (NYSE:JEF) also recently accepted a settlement with the SEC to avoid prosecution in the Litvak case. The company agreed to pay a $25 million fine but admit no guilt  in order to resolve investigations regarding Mr. Litvak.

Feds continues to investigate banks for mortgage securities fraud

The SEC and the special inspector general for the Troubled Asset Relief Program announced back in January that have begun a new investigation of potential intentional mispricing of mortgage securities by several big banks from 2009 to 2011. According to the Wall Street Journal, the feds are investigating “significant misrepresentations” regarding some mortgage assets made by several major banks.