Jefferies Financial Group (NYSE: JEF) is grappling with a new trade finance scandal involving its Point Bonita Capital fund, which is already in the process of winding down. The fund has uncovered discrepancies in paperwork and evidence of allegedly fake invoices related to its financing arrangements with Radiant World, a prominent iron ore trader. Previously, Point Bonita had presented its exposure to Radiant World as being to established companies like Glencore Plc and Cargill Inc., but it was actually holding invoices owed to Radiant World that the trader had sold to the fund. Similarly, with First Brands, the fund claimed exposure to Walmart Inc. and AutoZone Inc. when it held invoices owed to First Brands.
At its peak, the Point Bonita fund managed $3 billion, with over a third tied to receivables from First Brands and Radiant World. Following the announcement last October that investors could begin redemptions, the fund's staff has significantly decreased from 15 to five people. Jefferies' exposure to Radiant World has decreased from its peak but remains below $300 million. Major trading houses, including Vitol Group and Cargill Inc., have ceased trading with Radiant World due to concerns about invalid invoices and fraudulent documents provided to banks.
This latest controversy adds to a broader pattern of issues within Jefferies' Leucadia Asset Management division, which managed $65 billion as of February. Jefferies CEO Rich Handler and President Brian Friedman addressed the First Brands situation in their annual letter, expressing deep regret and acknowledging the need to adjust and improve their control regime. Friedman also stated at Jefferies' investor day that the accumulating incidents were troubling and prompting increased scrutiny. Jefferies had previously taken a $30 million pre-tax loss related to the First Brands fallout.
