The US Securities and Exchange Commission (SEC) is investigating Jefferies Financial Group (NYSE:JEF) regarding its disclosures and relationship with First Brands Group, the bankrupt auto parts supplier whose $12 billion collapse has drawn regulatory attention, according to a report by the Financial Times.
The inquiry reportedly centers on whether Jefferies adequately informed investors in its Point Bonita fund, which held roughly $715 million in receivables linked to First Brands, about the extent of their exposure.
The SEC is also examining potential internal control issues and conflicts of interest within the bank tied to this exposure.
Concerns have been raised that investors may not have been fully aware of the fund’s connections to First Brands. Fund documents reportedly listed exposure to retailers such as Walmart and O’Reilly Automotive rather than the supplier itself, even though payments to the fund were routed through First Brands.
According to the Financial Times, the SEC is also looking into undisclosed fee arrangements between Jefferies and First Brands that may have breached loan agreements.
The SEC’s probe is at an early stage, the report added, and it is not yet clear whether it will result in any formal allegations of wrongdoing.
Jefferies declined to comment. The firm’s CEO Rich Handler has previously stated that the bank believes it was “defrauded” by First Brands, noting that the company’s bankruptcy had not significantly affected Jefferies’ core operations.
Shares of Jefferies traded hands at $57 on Friday morning, down 27% in the year to date.