Jefferies LLC has agreed to pay a $37,200 fine as part of a settlement with the Financial Industry Regulatory Authority (FINRA). The fine stems from Jefferies’ violations of FINRA Rules 3110 and 2010, caused by its supervisory system, which failed to comply with Regulation M of the Securities Exchange Act of 1934.
From at least January 2018 to September 2022, Jefferies’ supervisory system and written supervisory procedures (WSPs) failed to adequately ensure compliance with Regulation M. This regulation prohibits underwriters, broker-dealers, and other distribution participants from bidding for, purchasing, or inducing others to bid for or purchase a covered security during the restricted period of a distribution offering.
Jefferies LLC Settles with FINRA for $37,200 Fine
Under Rule 101(a), Regulation M defines the period of restriction for a covered security as starting one or five business days before the offering price is determine and ending when the distribution participant completes their participation in the distribution.
During this time, participants cannot take actions that artificially stimulate demand or affect the pricing of the offering, such as engaging in prohibited bidding or purchasing activities, unless an exception applies.
Jefferies’ supervisory system and WSPs described Regulation M and related rules but failed to implement necessary procedures for ensuring compliance. Specifically, they failed to conduct adequate supervisory reviews to verify whether an offering qualified as a distribution, whether restricted periods were accurately determined, or whether any impermissible trading or bidding activity occurred during restricted periods.
As a result, Jefferies did not identify whether it had purchased shares in covered securities during their restricted periods, violating FINRA Rules 3110(a) and (b) and 2010.
In addition to the fine, Jefferies has agreed to a censure. The parties resolved the matter simultaneously with similar cases, resulting in a total fine of $250,000.
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