Jefferies settles with FINRA, agreeing to pay a $37,200 fine over supervisory failures related to Regulation M compliance.
Jefferies settles with FINRA, agreeing to pay a $37,200 fine over supervisory failures related to Regulation M compliance.
Jefferies settles with the Financial Industry Regulatory Authority (FINRA), agreeing to pay a $37,200 fine for supervisory deficiencies in its compliance with Regulation M under the Securities Exchange Act of 1934.
The violations occurred between January 2018 and September 2022, during which the firm failed to implement reasonable procedures to ensure compliance with key rules governing securities trading during restricted periods. Regulation M prohibits underwriters, broker-dealers, and other participants from engaging in certain trading activities during specified “restricted periods” around public securities offerings.
According to Rule 101(a) of Regulation M, it is unlawful for such participants to directly or indirectly bid for, purchase, or induce others to bid for or purchase a covered security during the restricted period unless an exception applies.
The intent is to prevent market manipulation by artificially inflating the price or demand for securities during critical phases of an offering. However, FINRA found that Jefferies’s written supervisory procedures (WSPs) were insufficiently designed to ensure compliance with these regulations.
While the firm’s WSPs outlined the basic requirements of Regulation M, they lacked detailed instructions on verifying whether an offering qualified as a distribution, accurately determining restricted periods, or conducting appropriate supervisory reviews to prevent impermissible trading activity during these periods. As a result of these gaps, Jefferies failed to perform necessary reviews to confirm whether it had engaged in prohibited activities, such as purchasing securities during restricted periods.
This oversight led to violations of FINRA Rules 3110(a) and (b), which require firms to establish adequate supervisory systems, as well as Rule 2010, which mandates ethical business conduct. In addition to the monetary fine, Jefferies has agreed to a censure as part of the settlement. This resolution is part of a more extensive enforcement action involving similar cases from several exchanges, including the New York Stock Exchange and Nasdaq, resulting in a collective $250,000 in fines.
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