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Jeffries and Co Fined $1.5 Million for Violations in Sale of Auction Rate Securities (ARS)
Posted by: Robert Rex
April 18, 2011

Jeffries and Company, Inc. has been ordered by FINRA to repay $425,000 in commissions and fined and additional $1.5 million dollars for violating securities regulations while selling Auction Rate Securities (ARS). FINRA has also fined, suspended, or filed complaints against the three brokers involved in the sale of these products, Robert d'Addario, Anthony Russo, and Richard Morrison.

Auction Rate Securities are debt instruments similar to bonds but with variable interest rates that are set through an auction process. The three brokers mentioned above bought and sold these securities for their customers, but failed to disclose that the particular securities they were trading yielded unusually high commissions and paid lower interest rates than comparable securities.

To make things worse, the brokers acted as both the buying and selling agents for separate customers at Jeffries and Company but failed to disclose this conflict, essentially trading the securities back and forth between different internal accounts while generating commissions for themselves.

The degree to which these brokers and their firm engaged in improper behavior is evident from the severity of the sanctions levied upon them by FINRA. They were also found to have committed a host of other violations, including using misleading sales materials and failing to deliver official statements.

Any investor that suspects their broker or brokerage firm has engaged in improper behavior, whether related to the sale of Auction Rate securities or not, would do well to contact a securities lawyer and explore the legal recourses available to them.

Read more at FINRA's website: http://www.finra.org/Newsroom/NewsReleases/2011/P123497

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