The SEC charged a former executive at New
York-based broker-dealer Jefferies & Co. with defrauding investors while
selling mortgage-backed securities (MBS) in the wake of the financial crisis so
he could generate additional revenue for his firm.
According to the SEC’s complaint filed in federal court in
Connecticut, the former executive arranged trades for customers as part of his
job as a managing director on the MBS desk at Jefferies. The SEC alleges that the former
executive would buy a MBS from one customer and sell it to another customer,
but on many occasions he lied about the price at which his firm had bought the
MBS so he could re-sell it to the other customer at a higher price and keep
more money for the firm. On other occasions, he misled purchasers by
creating a fictional seller to purport that he was arranging a MBS trade
between customers when in reality he was just selling MBS out of his firm’s
inventory at a higher price. Because MBS are generally illiquid and
difficult to price, it is particularly important for brokers to provide honest
and accurate information.
The SEC alleges that the former
executive generated more than $2.7 million in additional revenue for Jefferies
through his deceit. His misconduct helped him improve his own standing at
the firm, as his bonuses were determined in part by the amount of revenue he
generated for the firm.
“Brokers must always tell
their customers the truth, particularly in complex securities transactions in
which it is difficult for investors to determine market prices on their own,”
said George Canellos, Deputy Director of the SEC’s Division of
Enforcement. “[The former executive] repeatedly lied to his customers and
invented facts to bring additional profits into his firm and ultimately his own
pocket at their expense.”
For more information, visit SEC Charges Former Jefferies Executive with Defrauding Investors in Mortgage-Backed Securities.
