Jefferies Says SEC Move May Affect Earnings

Jefferies & Co., a Los Angeles-based brokerage firm specializing in serving institutional investors, said Friday that the Securities and Exchange Commission has challenged the way the firm booked on its 1986 financial statements a $5-million loss resulting from a legal settlement paid partially by its own chief executive.

The SEC’s position could result in a substantial cut in Jefferies’ stated earnings for the fourth quarter of 1986 and for the entire fiscal year.

A Jefferies spokesman said the firm disputes the agency’s interpretation and is supported by its outside auditing firm, Peat, Marwick, Mitchell. SEC spokesmen had no comment.

According to Frank Baxter, Jefferies’ president and chief operating officer, the matter at issue is a $5-million settlement the firm made to one or both parties in a disagreement over a securities trade. Jefferies represented both parties but Baxter declined to identify them. Ultimately, the firm paid $1.2 million of the settlement and its chief executive officer, Boyd L. Jefferies, who arranged the transaction, paid the rest himself.

The firm booked a $1.2-million loss on the transaction. The SEC, however, argued that it should record the loss as $5 million and treat Boyd Jefferies’ payment as a contribution to capital.

The effect of the change would be to subtract $3.8 million from the firm’s pretax profit and an as-yet-undetermined amount from its after-tax profit. There would be no effect on its net worth, Baxter said.

Baxter said the dispute is unrelated to the Ivan F. Boesky insider trading affair, in which the SEC has subpoenaed documents from Jefferies & Co. but has not charged the firm or any of its officials with any wrongdoing.

Jefferies reported net income of $13.7 million after tax for 1986 and $4.3 million for the fourth quarter ended Dec. 31. The pretax figures are $25.8 million for the full year and $7.7 million in the fourth quarter.