Jefferies Faces Probe Over $715M Exposure to Bankrupt Client
Investigations follow an 8% stock drop after the firm revealed significant ties to bankrupt auto parts supplier First Brands Group.
Jefferies Financial Group (JEF) is facing mounting pressure as law firms launch investigations into potential securities violations, following the revelation of the firm's significant financial exposure to a bankrupt client. The investment bank's stock plunged nearly 8% on October 8 after it disclosed ties to the now-bankrupt auto parts supplier, First Brands Group, prompting scrutiny over whether the firm misled investors.
The controversy centers on a managed through Point Bonita Capital, a division of Jefferies' Leucadia Asset Management. This exposure to First Brands' receivables represents a substantial 25% of Point Bonita's trade finance portfolio. First Brands Group, which filed for Chapter 11 bankruptcy protection on September 29, has liabilities exceeding $10 billion, and payments on the receivables held by Point Bonita ceased in mid-September.
In response to the news, the law firm Bleichmar Fonti & Auld LLP (BFA Law) announced it is , specifically examining whether the company made materially false or misleading statements to investors regarding its financial health and risk management.
While Jefferies has stated it holds no direct securities or debt of First Brands, the indirect exposure through its asset management arms has spooked investors. The initial disclosure on October 8 caused the company's shares to fall by $4.66, wiping out significant market value. The announcement of formal investigations is renewing bearish pressure on the stock as the market digests the full extent of the potential fallout from the First Brands bankruptcy and the legal challenges now facing the financial group.