Investment Bank With Stamford Ties Fined $25 Million For Fraud

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A New York-based investment bank with Stamford ties will pay a $25 million fine for securities fraud.
A New York-based investment bank with Stamford ties will pay a $25 million fine for securities fraud. Photo Credit: Wikimedia Commons

STAMFORD, Conn. -- New York-based investment bank and broker-dealer Jefferies, which has a division in Stamford, has been fined $25 million by the federal government after trading in fraudulent residential mortgage-backed securities, according to a statement from the U.S. attorney in Connecticut.

“Employees in Jefferies’ fixed income division repeatedly misled their own customers," U.S. Attorney Deidre Daly said in the release. “The sole purpose of this deception was to increase profit to Jefferies and its employees. Not only did management tolerate these illegal practices, but the culture within the division encouraged the fraudulent conduct."

Earlier this week, Jesse C. Litvak, a former Jefferies employee, was convicted on 11 counts of fraud and other charges.

Jefferies’ Mortgage and Asset-Backed Securities Trading group traded residential mortgage-backed securities on the secondary market by buying and selling residential mortgage-backed securities to customers, including Legacy Securities Public-Private Investment Funds. 

In about 2009, certain Jefferies’ employees in that group fraudulently increased the profitability of certain residential mortgage-backed securities trades for Jefferies in various ways, including by misrepresenting the residential mortgage-backed securities seller’s asking price to the buyer and by misrepresenting the buyer’s asking price to the seller. Jefferies’ employees also concealed that residential mortgage-backed securities were being sold from its inventory to charge buyers an extra commission to which Jefferies was not entitled.

At times, members of Jefferies’ management in the fixed income division became aware that Jefferies employees were making misrepresentations to customers and did nothing to stop it.

The penalty includes up to $11 million in restitution to victims and up to a $4,200,402 penalty to the U.S. Securities and Exchange Commission.

Jefferies also agreed to address deficiencies in the compliance and ethics practices and policies of its Mortgage and Asset-Backed Securities Trading group.  These measures include Jefferies’ agreement to retain an Independent Compliance Consultant to conduct a review of Jefferies’ policies and procedures for detecting and preventing fraud in connection with the purchase or sale of residential mortgage-backed securities.

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