No Wonder Jefferies Likes The Prime Brokerage Game So Much

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Publish date:Nov 18, 2021No Wonder Jefferies Likes The Prime Brokerage Game So Much(Allegedly) holding collateral and charging millions in fees for worthless positions is about as good a business as exists, until the arbitration claims come, anyway.Author:Jon Shazar

(Allegedly) holding collateral and charging millions in fees for worthless positions is about as good a business as exists, until the arbitration claims come, anyway.

If you’re a hedge fund, Jefferies would like to do business with you. In fact, they’d like to do business with you that no other bank has wanted to do in years; that's how much they lust for your client-ship. And perhaps you might just be willing to give it a try. After all, you say, you have no intention of trying to strong-arm the bank into doing something both immoral and illegal, what could possibly go wrong?

Well, IsZo Capital Management would like to tell you what could (allegedly) go wrong.

The conflict arose in June, when IsZo, which manages more than $300 million, tried to close its Jefferies account and move its cash and holdings to another prime broker. Jefferies told the hedge fund that the illiquid positions couldn’t be transferred and would have to remain open, subject to minimum net equity and collateral requirements, according to IsZo…. In the cases cited by IsZo, the market for the securities of those companies disappeared, leaving them unable to cover their position. IsZo calls it “little more than a theft.”

“While these 7 legacy short positions ‘remain open,’ Jefferies is further charging IsZo Capital money on the seized positions that do not exist and it purports to be able to borrow such funds for almost nothing,” the hedge fund said.

We are forced to ask, once again, why anyone would put themselves through the agony of even a successful short.

“Even the barest modicum of diligence would have revealed that there is no danger that any of the 7 legacy short positions could ever become a meme stock,” IsZo said in the filing. “The securities – to the extent that they even exist – have no trading market at all.”

Hedge Fund IsZo Says Jefferies 'Hijacked' Its Brokerage Account [Bloomberg]

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