Jefferies LLC Settles with FINRA, Agrees to $37,200 Fine Over Regulation M Violations

Jefferies LLC settles with FINRA, agreeing to a $37,200 fine for supervisory failures related to Regulation M compliance.

Key Points:

• Jefferies LLC was fined $37,200 by FINRA for inadequate compliance with Regulation M from 2018 to 2022.
• The firm also faced fines totaling $250,000 from other regulators, including Nasdaq and NYSE entities.

Jefferies LLC has agreed to pay a $37,200 fine and accept censure as part of a settlement with the Financial Industry Regulatory Authority (FINRA) for supervisory failures related to compliance with Regulation M, the federal rule designed to prevent manipulation in securities offerings.

From January 2018 through September 2022, regulators found Jefferies’ supervisory system and written supervisory procedures (WSPs) insufficiently designed to achieve compliance with Regulation M and related FINRA rules. FINRA determined that these failures violated Rules 3110(a), 3110(b), and 2010. 

Regulation M, under the Securities Exchange Act of 1934, prohibits underwriters, broker-dealers, and other distribution participants from bidding for, purchasing, or inducing others to bid for or purchase a “covered security” during a restricted period. As defined by Rule 100(b), the restricted period begins one to five business days before the offering price is set. It ends when the participant completes its involvement in the distribution.

Jefferies LLC Settles with FINRA, Agrees to $37,200 Fine Over Regulation M Violations

Supervisory Shortcomings

According to FINRA, Jefferies’ WSPs outlined the requirements of Regulation M but failed to provide sufficient guidance on achieving compliance. The firm did not conduct necessary supervisory reviews to determine the following:

• Whether offerings qualified as distributions.
• The accuracy of restricted periods.
• The reliability of Restricted Period Notifications.
• Whether Jefferies engaged in prohibited trading or bidding activity during restricted periods.

These gaps led to the firm’s inability to identify instances where it may have purchased shares in covered securities during restricted periods, raising concerns about the market’s integrity.

Settlement and Broader Enforcement

In addition to the fine and censure from FINRA, Jefferies resolved similar regulatory actions brought by other exchanges, including Investors Exchange LLC, Nasdaq, and NYSE-affiliated entities. Collectively, these matters resulted in total fines amounting to $250,000.

The regulatory actions highlight the importance of robust supervisory systems in ensuring compliance with securities laws and protecting market integrity.

Jefferies has not admitted to or denied the findings but has consented to the sanctions imposed. The firm’s resolution of these matters reflects its commitment to addressing compliance shortcomings.

Market Implications

Regulation M is a cornerstone of the SEC’s efforts to prevent market manipulation during securities offerings. Violations can artificially stimulate demand, distort pricing, and erode investor trust. The enforcement action underscores regulators’ focus on ensuring that firms maintain adequate controls to uphold market fairness.

Jefferies LLC has not issued a public comment on the settlement.

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