WASHINGTON — The Financial Industry Regulatory Authority has fined Jefferies & Co. $1.5 million for failing to disclose additional compensation it and its brokers received and conflicts they had in connection with the purchase of auction-rate securities.
FINRA also ordered the New York-based firm to repay $425,000 in fees and commissions it earned from the sale of the ARS to customers.
The self-regulator sanctioned two Jefferies brokers and filed a complaint against a third for their role in not disclosing the additional compensation and conflicts. Anthony Russo was fined $20,000 and given a five business-day suspension. Robert D’Addario was fined $25,000 and given a 10 business-day suspension. Richard Morrison charged with rule violations.
The brokers were part of the Corporate Cash Management group at Jefferies that provided short-term investment advice and services for about 40 of its corporate clients. About eight of the clients instructed the CCM group to exercise its discretion in selecting specific ARS to buy and sell for their accounts.
FINRA claimed that from Aug. 1, 2007, to March 31, 2008, Jefferies, through the three brokers, failed to disclose to the eight corporate customers that they received additional compensation when they purchased new auction-rate securities for them and that they could have purchased other ARS with higher yields that did not provide the firm and brokers with additional compensation.
FINRA said the firm and brokers violated its rules as well as several Municipal Securities Rulemaking Board rules, including those on fair dealing, advertising, disclosures, supervision and books and records.
