U.S. criminal and civil authorities are investigating more Jefferies Group LLC traders after settling claims with the bank that certain employees lied to customers about mortgage-bond prices.
The Securities and Exchange Commission and the U.S. Attorney for Connecticut settled investigations into whether the bank’s traders defrauded a government program meant to boost the bond market after the financial crisis, they said in separate statements today. Jefferies disclosed in January the $25 million accord, which includes a non-prosecution agreement.
The U.S. is continuing to look into mortgage-bond traders at New York-based Jefferies after former managing director Jesse Litvak was convicted last week of defrauding customers of more than $2 million on trades of residential mortgage-backed securities from 2009 to 2011. While the company cooperated once regulators discovered the scheme, Litvak wasn’t the only employee who lied to his customers, the U.S. said.
“Jefferies management in the fixed-income division learned of the fraud and did nothing to stop it,” said Patricia Ferrick, the Federal Bureau of Investigation special agent in charge of the New Haven division.
The penalty includes $11 million for counterparties harmed in certain trades and $4.2 million to the SEC, according to the statement today.
The largest global banks lost billions of dollars on mortgage-backed debt during the financial crisis as U.S. home prices plunged and the market for such assets dried up. While the securities rebounded after the crisis, markets remained illiquid with wide spreads between bids from buyers and sellers.
Richard Khaleel, a spokesman for Jefferies, which is a unit of Leucadia National Corp. (LUK), declined to comment.
Prosecutors accused Litvak of misrepresenting sellers’ asking prices to buyers, or vice versa, keeping the difference for Jefferies. His victims include investment funds, among them six established by the U.S. Treasury Department as part of its response to the financial crisis, prosecutors said.
Federal authorities are reviewing possible trading abuses at other banks including JPMorgan Chase & Co. and UBS AG, two people briefed on the matter said in January.
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