Jefferies Settles SEC Charges Involving Illegal Gifts and Entertainment
Firm's Sales Trader Lavished Expensive Travel and Other Extravagances to Win
Mutual Fund Business
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 4, 2006 - The Securities and Exchange Commission today charged registered broker-dealer Jefferies & Co., Inc., and two executives in connection with approximately $2 million worth of lavish gifts, extravagant travel and entertainment and other illegal gratuities given to win mutual fund trading business. Jefferies, its Director of Equities, Scott Jones, and Kevin Quinn, the firm's former Senior Vice President and equity sales trader, have agreed to the Commission's institution of settled enforcement proceedings.
The Commission issued Orders that find that, in May 2002, Jefferies hired Quinn to increase Jefferies' brokerage business with a family of mutual funds managed by an adviser with which Quinn had a pre-existing relationship. To retain Quinn as an expected rainmaker, the firm gave him a highly lucrative compensation package that included a $1.5 million annual travel and entertainment budget, which Quinn used to lavish travel, entertainment and gifts on a handful of the fund adviser's most successful equity traders and the adviser's head of equity trading. The Commission's Orders find that Quinn aided and abetted the violations of the fund adviser's employees, and that Jefferies and Jones failed to supervise Quinn's misconduct.
According to the Commission's Orders, Quinn provided the traders with expensive golf trips, flew them on private jets, lodged them at fancy hotels, and showered them with golf merchandise and other presents. On certain occasions, he also made private jets available to them to take on personal trips without his attendance. Quinn also gave these same traders tickets to major sporting events, Broadway shows, and concerts, again without his attendance, and even helped pay for one trader's elaborate bachelor party in Miami. The Commission's Orders further find that Jones, Quinn's primary supervisor, approved numerous expense vouchers that reflected inappropriate expenditures on behalf of the traders. The illegal conduct occurred between May 2002 and October 2004.
Walter G. Ricciardi, Deputy Director of the Commission's Division of Enforcement, said, "It is illegal for brokers to compensate mutual fund traders for brokerage business; the traders' loyalty and allegiance are owed solely to investors and such compensation may harm investors by impairing the traders' objective judgment. Here, Mr. Quinn lavished gifts and excessive entertainment on select equity traders to improperly sway the flow of brokerage business, and Mr. Jones and Jefferies failed to properly supervise Mr. Quinn despite providing him with an annual budget of $1.5 million for travel and entertainment."
David P. Bergers, District Administrator of the Commission's Boston District Office, added, "Brokerage firms must monitor their employees' use of company funds to ensure they are not illegally providing compensation for brokerage business. When they fail to do so and their employees illegally provide such compensation, the Commission will hold them accountable."
The Commission's Order against Quinn finds that Quinn willfully aided and abetted and caused violations of Section 17(e)(1) of the Investment Company Act, Section 17(a)(1) of the Exchange Act and Rule 17a-3 thereunder. Under the terms of the settlement, Quinn has agreed, without admitting or denying the Commission's findings or allegations, to payment of $1 of disgorgement and a civil monetary penalty of $468,000 to a Fair Fund for the benefit of the fund adviser's clients; a cease-and-desist order against committing or causing any violations and any future violations of Section 17(e)(1) of the Investment Company Act and Section17(a)(1) of the Exchange Act and Rule 17a-3 thereunder; a bar from association with any broker or dealer; and a prohibition from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company.
The Commission's Order against Jefferies and Jones further finds that Jefferies failed reasonably to supervise Quinn, with a view to preventing and detecting Quinn's aiding and abetting violations of Section 17(e)(1) of the Investment Company Act. The Order also finds that Jefferies violated Section 17(a)(1) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 17a-3 thereunder. Without admitting or denying the Commission's findings, Jefferies has consented to the imposition of a cease-and-desist order against committing or causing any violations and any future violations of Section 17(a)(1) of the Exchange Act and Rule 17a-3 thereunder; a censure; and payment of $4.2 million in disgorgement, plus prejudgment interest. Jefferies has also agreed to retain an independent compliance consultant to conduct a comprehensive review of Jefferies= supervisory, compliance, and other policies and procedures relating to the provision of gifts, travel, and entertainment by the company and its employees. Jefferies also will pay a penalty of $5.5 million to NASD in connection with the settlement of a separate NASD proceeding based on the same underlying conduct.
Finally, the Order against Jefferies and Jones finds that Jones failed reasonably to supervise Quinn, with a view to preventing and detecting Quinn's aiding and abetting violations of Section 17(e)(1) of the Investment Company Act. Jones has consented, without admitting or denying the Commission's findings, to payment of a civil money penalty of $50,000 and a three month suspension from acting in a supervisory capacity for any broker or dealer.
The Commission acknowledges the assistance and cooperation in this investigation of NASD, which first discovered the conduct at issue during a routine examination of Jefferies & Co., Inc.
The Commission's investigation is ongoing.
For further information, contact:
Walter G. Ricciardi
Deputy Director, Division of Enforcement
David P. Bergers
Boston District Office
Additional materials: Administrative Proceeding Nos. 34-54861 and