The U.S. Securities and Exchange Commission is investigating Jefferies Financial Group Inc. (NYSE:JEF) over whether the investment bank adequately informed investors about its exposure to First Brands Group, the now-bankrupt car parts supplier whose collapse triggered widespread scrutiny across the private credit sector.
According to an exclusive Financial Times report on Thursday, the SEC's civil probe focuses on Jefferies' Point Bonita Capital fund, which held approximately $715 million in receivables linked to First Brands before the auto parts company filed for Chapter 11 bankruptcy in September, burdened with $12 billion in debt.
Jefferies And First Brands: What Is The SEC Looking Into?
The SEC is reportedly assessing whether Jefferies clearly disclosed to investors how much of the Point Bonita fund was tied to First Brands.
As of June, official fund documents didn't list First Brands directly. Instead, the second- and third-largest exposures were attributed to retailers Walmart Inc. (NYSE:WMT) and O'Reilly Automotive Inc. (NASDAQ:ORLY), both of which were First Brands' customers.
However, Jefferies later said that payments to Point Bonita didn't come directly from those retailers, but rather were routed through First Brands.
Bankruptcy filings confirmed this, revealing that all $2.3 billion in invoice financing was ultimately paid by the supplier itself, not end customers.
The investigation also examines possible internal control lapses and conflicts of interest between different units at Jefferies. Although still in early stages, the SEC's inquiry signals growing regulatory interest in the systemic risks emerging from opaque private credit strategies.
Opaque Fee Arrangements Raise More Questions
The Financial Times previously reported that Jefferies received undisclosed fees through a "side letter" with First Brands—an arrangement some lenders said may have violated loan agreements.
Jefferies later acknowledged the existence of the side letter but insisted that it had been disclosed through official documentation and backed by a legal opinion affirming its legitimacy.
Jefferies CEO Said Firm Was ‘Defrauded' by First Brands
At Jefferies' investor day on Oct. 17, CEO Rich Handler said the firm personally believes it was defrauded by bankrupt auto parts maker First Brands Group, according to a regulatory filing.
Despite the loss, he said the broader financial environment remains "generally good." Handler also pointed to growing industry tensions, describing a "fight" between banks and direct lenders over who bears responsibility.
Why It Matters For Private Credit Markets
The unraveling of First Brands highlights growing risks in private credit markets, where non-bank lenders and funds like Jefferies' Point Bonita have extended vast sums in financing with less transparency than traditional banks.
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Image: Shutterstock/T. Schneider
