Jefferies will pay $25 million to settle charges that it abetted mortgage-backed-securities fraud.

The New York investment bank's nonprosecution agreement with the U.S. attorney's office in Connecticut resolves the issue of its corporate criminal liability in an employee trading scheme, the Special Inspector General for the Troubled Asset Relief Program said in a press release Wednesday.

The IG's office got involved because the victims included six of the eight firms that managed Tarp funds intended to reboot securities markets.

Jefferies agreed to pay up to $11 million in restitution to victims and up to $4.2 million to the Securities and Exchange Commission as part of the deal, according to the release. The rest of the funds will go to the Treasury Department.

The company also agreed to improve the ethics practices, policies and compliance of its mortgage and asset-backed securities trading group.

In 2009 "certain employees" in Jefferies' mortgage and asset-backed securities trading group sought to pump up profits by lying to residential MBS buyers and sellers about each other's asking prices, according to the release. They also concealed the fact that they had sold RMBS from Jefferies' inventory in order to charge buyers extra commissions and keep the money for themselves. Managers of Jefferies' fixed income division learned of the scheme and allowed it to continue, according to the release.

"Employees in Jefferies' fixed income division repeatedly misled their own customers," U.S. Attorney Deidre Daly said in the release. "The sole purpose of this deception was to increase profit to Jefferies and its employees. Not only did management tolerate these illegal practices, but the culture within the division encouraged the fraudulent conduct. By entering into this agreement, Jefferies recognized the seriousness of the problem and committed to change. While our investigation of individuals continues, we agreed to this corporate resolution in order to reflect the company's cooperation and to avoid further damage to its many blameless employees and shareholders."

Jefferies' former managing director, Jesse Litvak, was found guilty last week for his role in the scheme to defraud investors. He was convicted by a federal grand jury in New Haven, Conn., and is scheduled to be sentenced May 30. Litvak is the only Jefferies employee to be charged so far, according to the IG's office.

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