US SEC investigating Jefferies over disclosure of exposure to bankrupt First Brands: report

The US Securities and Exchange Commission has opened an inquiry into Jefferies’ relationship with bankrupt auto parts manufacturer First Brands Group, according to reporting from the Financial Times.

The regulator is examining whether Jefferies provided adequate disclosure to investors about the extent of its Point Bonita fund’s exposure to the failed business, which collapsed under $12 billion of debt in September.

People familiar with the matter told the newspaper that the SEC is also reviewing Jefferies’ internal controls and assessing potential conflicts within the bank and across its various business units.

The probe is at an early stage, and it remains unclear whether it will lead to any formal allegations of wrongdoing.

The inquiry underscores how the bankruptcy of First Brands — a significant borrower in the fast-growing but opaque private credit industry — is now reverberating across the financial sector.

Focus on whether Jefferies alerted investors to risks

The SEC’s central question, according to the report, is whether Jefferies gave investors in its Point Bonita Capital fund sufficient information about the fund’s exposure to receivables linked to First Brands.

While Point Bonita’s documents did not list exposure to the auto parts maker as of June, they showed that its largest positions were receivables owed by major customers of First Brands, including Walmart and auto retailer O’Reilly.

Jefferies disclosed in October that the fund held around $715 million in receivables tied to retailers purchasing First Brands products such as windscreen wipers.

Although Jefferies said those receivables were due from blue-chip buyers like Walmart, the bank later acknowledged that it had not been receiving payments directly from retailers.

Instead, First Brands had been “directing” funds from customers to the Point Bonita fund.

Bankruptcy filings subsequently confirmed that invoice lenders providing $2.3 billion in financing linked to First Brands’ receivables had been paid by the company itself, rather than by end customers.

That revelation raised questions about the transparency and risk structure underpinning the receivables-based financing.

Jefferies says it was “defrauded”

Jefferies CEO Rich Handler said last month that the bank believes it was “defrauded” by First Brands, arguing that the company’s collapse had not materially damaged Jefferies’ core business.

Still, the failure has triggered broader scrutiny into lending standards and credit-risk practices within the private credit ecosystem.

Jefferies had maintained a long-standing relationship with First Brands, advising the company, providing invoice financing, and placing large volumes of its loans with outside investors.

These interlocking roles are reportedly part of what the SEC is examining as it evaluates potential conflicts and risk controls within the bank.

Sources told the newspaper it is not yet known whether the agency is expanding its review to include other financial firms that engaged with First Brands.