Jefferies helped a rogue hedge fund partner trade with tons of leverage that bankrupted his fund, a new ruling finds
- An arbitrator ruled that Jefferies helped Lee Bressler, one of three partners in an Oklahoma-based hedge fund, create side accounts and make extremely leveraged trades that eventually forced the fund to close.
- Bressler's two partners sued him after the closure of the fund. Jefferies denies that the side accounts were unknown to Bressler's partners, and are currently in arbitration with fund.
- Bressler used $10 million from the fund as collateral to get credit from Jefferies, and made leveraged trades in Tesla and Amazon that eventually backfired, according to the ruling. The trades generated significant commissions for Jefferies, the ruling states.
- The fund, Carbon Investment Partners, closed after Bressler took positions that were "in excess of 100% to 3,000%" of the fund's total assets, the new filing states.
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An arbitrator found that Jefferies helped a hedge fund trader create side accounts invisible to the hedge fund's other partners and take massive positions that violated the bank's internal risk limits.
Lee Bressler, the former CIO and partner of Oklahoma-based Carbon Investment Partners, created side accounts with the fund's prime broker, Jefferies, and used $10 million of the fund's capital as collateral to get money from Jefferies to invest via a personal account, a new filing from an arbitrator in Oklahoma states.
Bressler was sued by his two other partners in the fund, Rick Nagel and Brandon Bradford. The fund was forced to close after Bressler lost on massive positions in Tesla and Amazon that were, at times, more than 3,000% of the fund's total assets, according to the ruling.
Nagel and Bradford were awarded more than $16 million by the arbitrator, to be paid by Bressler. Jefferies was not a listed defendant in the suit. Separately, there is a FINRA arbitration ongoing between Jefferies and the fund over a $2.4 million deficit that Bressler left in the fund's account with Jefferies.
Jefferies, the ruling states, helped Bressler keep the side accounts secret from his partners, and knew that Nagel, who was the only one of the partners permitted to open a new account related to the fund, was unaware of the side accounts.
"The evidence showed that Jefferies did not prohibit or discourage Bressler's trading in the Jefferies Side Accounts, even though Bressler's trades violated the Fund's limits on trade exposure, Jefferies's internal rules regarding margin trading, and FINRA Rules," the filing reads.
Jefferies, the ruling states, enjoyed increased commission revenues from Bressler's large trades that he called "bet my career" positions.
Overleveraged trades in side accounts in early 2018 "resulted in the loss of all invested capital and a multi-million-dollar deficiency" while the fund's primary account showed normal trading activities, the ruling found.
Representation for Bressler did not respond to requests for comments. The bank, which did not present evidence in the arbitration between Bressler and his former partners, disagreed with what the ruling found.
"Jefferies did absolutely nothing wrong in respect of the Carbon Fund. Every trading account that was opened for the Carbon Fund and every Carbon Fund trade that was cleared through Jefferies was provided to the Carbon Fund principals and fully transparent to them, their fund administrators and their accountants,," according to a Jefferies spokesman.
"The reported arbitration decision was based solely on the Carbon Fund's principals' one-sided recitation of their allegations, which are absolutely false and self-serving. Jefferies was not a party to that arbitration and did not testify or present any evidence at that hearing, so there is no factual or legal basis for such inaccurate conclusions. Jefferies has brought a $2.4 million claim against the Carbon Fund and will prevail by proving that the Carbon Fund's losses were caused solely by Mr. Bressler's trading and was not prevented due to the failure of the Carbon Fund principals to monitor Bressler's accounts and his trading, all of which were provided to them routinely from multiple sources, including Jefferies."