The U.S. Securities and Exchange Commission has opened a civil investigation into Jefferies Financial Group, focusing on whether the investment bank properly disclosed its exposure to First Brands Group, the now-bankrupt auto parts supplier whose collapse has sent shock waves through the private credit market.

The probe centers on Jefferies’ Point Bonita Capital fund, which held roughly $715 million in receivables tied to First Brands before the company filed for Chapter 11 bankruptcy in September under a massive $12 billion debt load, according to reporting from the Financial Times.The SEC is examining whether Jefferies gave its fund investors a true picture of how much Point Bonita depended on First Brands.

Fund disclosures as of June did not list First Brands as a direct exposure. Instead, the fund’s second- and third-largest positions were attributed to Walmart and O’Reilly Automotive, two major retail customers of First Brands.

But Jefferies later acknowledged that payments to the fund did not come from those retailers. Instead, all funds flowed through First Brands itself. Bankruptcy filings confirmed this point, noting that the entire $2.3 billion in invoice-financing obligations was ultimately paid by the supplier… not by end customers like Walmart or O’Reilly.This discrepancy has become a central focus of regulators seeking to understand whether investors were misled about the fund’s true concentration risk.

The SEC is also looking into potential weaknesses in Jefferies’ internal controls and possible conflicts of interest between the firm’s various business units.The investigation remains in its early stages, and there is no indication yet whether the regulator will file formal allegations.

When asked, the SEC declined to comment, citing its policy not to confirm or deny investigations.The Financial Times previously reported that Jefferies received undisclosed fees through a “side letter” agreement with First Brands, an arrangement that some lenders argued may have violated loan covenants.Jefferies later acknowledged the existence of the side letter but maintained that the fees were disclosed through the appropriate channels and supported by a legal opinion.At Jefferies’ October 17 investor day, CEO Rich Handler said the firm believes it was “defrauded” by First Brands.

Handler described the situation as part of a broader industry “fight” between banks and direct lenders over responsibility for mounting credit losses in opaque private-credit structures. Despite the turmoil, Handler said the overall financial environment remains “generally good.”The First Brands collapse has heightened scrutiny of private credit funds, which operate with fewer public disclosure requirements than traditional banks. Jefferies’ exposure has fueled concerns about similar vulnerabilities across the industry.

Jefferies shares have fallen more than 12% this quarter and 27% year-to-date, reflecting mounting investor unease.

About Jefferies Financial Group

Jefferies Financial Group Inc. (NYSE: JEF) is a diversified financial services company providing investment banking, capital markets, asset management, and merchant banking services. Through its subsidiaries, Jefferies operates globally across advisory, trading, research, underwriting, and investment management businesses. 

At the time of publishing, Stocks.News does not hold positions in companies mentioned in the article.