Jeffries & Co charged by SEC over illegal gifts and expenses

LOSSES & LAWSUITS

According to the SEC, Quinn, Jeffries' former senior vice-president and equity-sales trader, was hired in May 2002 to increase the firm's brokerage business with a family of mutual funds managed by an adviser with whom Quinn had an existing relationship.

Quinn's compensation package included a $1.5 million annual travel and entertainment budget, which was spent on travel, entertainment and lavish gifts for some of its most successful equity traders. The list of gifts included Broadway shows, private jets and in one case, payment for a trader's bachelor party.

Brokers are barred from compensating mutual fund traders for brokerage business under Section 17(e)(1) of the Investment Company Act, and under Section 17(a)(1) and Rule 17a-3 of the Exchange Act.

Walter G. Ricciardi, deputy director of the SEC's Division of Enforcement, said: "The traders' loyalty and allegiance are owed solely to investors, and such compensation may harm investors by impairing the traders' objective judgment. Here, Mr. Quinn lavished gifts and excessive entertainment on select equity traders to improperly sway the flow of brokerage business. Jeffries and Mr. Jones [the firm's director of equities] failed to properly supervise Mr. Quinn."

The firm, Jones and Quinn have agreed to the SEC's institution of settled enforcement proceedings, which involves substantial fines and a bar on Quinn's future employment in the financial industry. Jeffries was suspended for three months from acting in a supervisory capacity for any broker or dealer, and was ordered to pay a $5.5 million penalty to the National Association of Securities Dealers (NASD).

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