Jefferies & Company Background Information
Jefferies & Company was founded in 1962 by Boyd Jefferies in Los Angeles, but its headquarters were soon moved to New York. Although 75% of trading at that time was by individual investors, Jefferies focused on direct trading between institutions, known as the “third market”. The firm also broke with Wall Street’s jealously guarded pact of straight commissions. These moves vaulted Jefferies into prominence and, by 1966, it was the nations 7th largest brokerage firm. Jefferies went public in 1983 and was a major player in reorganizing companies during the 1980’s.
In 1987, a widespread scandal surfaced surrounding corporate takeovers and junk bonds. Boyd Jefferies was caught up in an investigation of takeover specialist Ivan Boesky, resigned from his firm, was convicted of securities fraud and banned from the securities industry. He soon sold his Jefferies stake for $11 million. Meanwhile, the firm survived and, when that same scandal sunk Drexel Burnham Lambert, Jefferies hired 60 of Drexel’s former investment bankers.
Jefferies & Company continued to expand after 1990 and was an early participant in international, derivative and 24-hour trading. The firm’s focus continues to be institutional clients and investment banking for mid-market companies, as its asset management services continues to grow. In 2006, Jefferies had gross revenues of almost $2 billion and market capitalization near $4 billion. It has 25 U.S., European and Pacific Rim offices with 2250+ employees. A rumored takeover candidate, for some reason Jefferies recently borrowed $600 million.
Prime Brokerage Services is a Jefferies subsidiary that provides trade execution, clearing, bookkeeping, reporting, custodial, securities borrowing, financing, research, and fund raising services to brokerage and other clients, including hedge funds. It maintains proprietary trading accounts on behalf of individual securities traders through this division.
Brokerage firm Jefferies & Co. Inc. was fined $5.5 million by the NASD for providing more than $1.6 million in improper gifts and entertainment to equity traders employed by Fidelity.
NASD officials said that, between 2002 and 2004, Jefferies showered mutual fund traders with gifts, entertainment and other perk’s in excess of $1.6 million, including chartered air travel, expensive hotels and restaurants, concerts, lavish golf weekends and other travel and expensive bottles of wine. Provided also were trips to Wimbledon, The Super Bowl, the U.S. Tennis Open and other sporting events.
One Fidelity trader was given a private chartered flight to Bermuda at a cost exceeding $17,000, and another island trip for more than $47,000, the NASD claimed adding that the Jefferies trader also reportedly paid more than $225,000 for private air charter flights and lodging, as much as $5,000 per night at the Bellagio Hotel in Las Vegas and two villas he used at the Esperanza Resort in Cabo San Lucas.
In 2004, the Jefferies trader apparently paid more than $125,000 for Super Bowl weekend-related expenses in Houston, which included Maxim and Playboy pre-game parties, a car service, private round-trip chartered flights, lodging and tickets to the game.
NASD rules limit gifts by firms and associated persons to customers to $100 per recipient per year. “The value of improper gifts and entertainment in this case is unprecedented,” said the NASD’s head of enforcement, “NASD’s gift and gratuity rules were designed to prevent just the sort of conduct at issue here, which threatens the integrity of the relationship between a brokerage firm and its institutional customer.”
The NASD also permanently barred the Jefferies trader from associating with any NASD-registered firm in any capacity and fined his former supervisor $50,000 and suspended him from supervision for three months. It also ordered the firm to retain an independent consultant to review of the firm’s policies, procedures and training relating to gifts and entertainment. Jefferies and its former agents neither admitted nor denied the allegations, but consented to the NASD’s sanctions.
Jefferies & Company, Inc. was censured and fined $125,000 by the NASD and required to revise its written supervisory procedures, including regarding frontrunning, trade reporting and long/short sales. Without admitting or denying the allegations, the firm consented to the sanctions.
The NASD said that, among other violations, Jefferies failed to immediately display customer limit orders in NASDAQ securities in its public quotation when such orders were at a price that would have improved the firm’s bid or offer in each such security. The NASD also found that the firm failed to properly record certain orders. The findings also stated that Jefferies failed to properly accept or decline ineligible securities within 20 minutes after execution.
Jefferies & Company, Inc. was censured and fined $27,500 by the NASD and was required to revise its supervisory procedures designed to prevent violations of securities laws and regulations concerning trade reporting, best execution and limit order display. Without admitting or denying the allegations, the firm consented to the sanctions.
The NASD said that Jefferies failed to report certain transactions in a timely manner, failed to designate last sale reports and failed to properly transmit the time of execution as required under the NASD’s Marketplace Rules.