Jefferies trader charged in $2 million investment fraud scheme

February 27, 2013

Jefferies trader charged in $2 million investment fraud scheme

Article provided by Stone Bonner & Rocco LLP
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As the nation has begun to recover from the effects of the financial crisis, it has become clear that the economic turmoil was caused -- at least in part -- by unscrupulous practices in the mortgage and securities industries. In an effort to prevent similar events from happening again, federal regulators have been cracking down on suspected cases of securities fraud.

In January 2013, federal authorities arrested a former managing director of the investment firm Jefferies & Company and charged him with 16 crimes, including securities fraud and making false statements. If convicted, he faces decades in prison -- each count of securities fraud can bring up to 20 years in prison, and a conviction on false statements is punishable by up to five years in prison on each count.

The government alleges that the man defrauded his customers of more than $2 million in trades related to mortgage-backed securities. Most of his victims were investment funds, including both private funds and six public funds established by the U.S. Treasury Department. Much of the alleged fraud was connected with the Troubled Asset Relief Program.

Civil claims also pending

The government became aware of the alleged crimes after a customer complained about being overcharged for trades. The customer filed a lawsuit against Jefferies, which was settled for $2.2 million.

In addition to the criminal charges, the man is also facing significant civil and regulatory action. In a court filing in October, he admitted to being under investigation by the U.S. Attorney in Connecticut, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Financial Industry Regulatory Authority and the U.S. Securities and Exchange Commission. Shortly after he was arrested, the SEC initiated a lawsuit accusing the man of engaging in more than 25 fraudulent trades between 2009 and 2011.

Among other improprieties, the man is accused of lying about the price securities sellers were asking for. He then allegedly overcharged buyers and kept the price difference for himself. The increased price also allowed him to charge extra commission.

Rights of fraud victims

This case is just one of many being pursued by the federal government. All told, more than 120 people have been charged with fraud and other crimes related to TARP.

However, it is important to remember that criminal charges are not the only way to seek justice. Criminal cases are intended to punish illegal conduct, not to make wronged investors whole. Instead, fraud victims can pursue civil actions to recover financial compensation for the harm that has been done to them. If you have been victimized by investment fraud, talk to an experienced securities litigation attorney who can help you protect your rights.