IsZo Capital Initiates FINRA Arbitration Against Jefferies and Its Leaders Over Alleged Fraud and Theft | Financial Buzz

IsZo Capital Initiates FINRA Arbitration Against Jefferies and Its Leaders Over Alleged Fraud and Theft

IsZo Capital Management LP (together with its affiliates, “IsZo” or “we”) today announced that it has issued the below letter to the Board of Directors and executive leadership of Jefferies Financial Group, Inc. (NYSE: JEF) (together with its affiliates, “Jefferies”), including Linda L. Adamany, Barry J. Alperin, Stephen Augustin, Robert D. Beyer, Christopher A. Bianchi, Francisco L. Borges, Teresa S. Gendron (Chief Financial Officer), Brian P. Friedman (President), MaryAnne Gilmartin, Richard B. Handler (Chief Executive Officer), Jennifer Kane, Esq., Jacob M. Katz, Matrice Ellis Kirk, Barsam Lakani, Michael T. O’Kane, Michael J. Sharp, Esq. (Executive Vice President/General Counsel), Joseph S. Steinberg and Melissa V. Weiler. The letter pertains to the statement of claim and arbitration proceeding that IsZo has initiated against Jefferies, pursuant to Rule 12200 of the Financial Industry Regulatory Authority (“FINRA”) Code of Arbitration Procedure and the mandatory arbitration clause that Jefferies incorporated into its customer agreements. Visit for information pertaining to our case against Jefferies.


November 17, 2021

Jefferies Financial Group, Inc.

Attn: The Board of Directors

520 Madison Avenue

New York, NY 10022

Dear Members of the Board of Directors:

Ladies and Gentlemen:

My name is Brian Sheehy, MD MA CFA. I am the President of IsZo Capital Management LP (together with its affiliates, “IsZo” or “we”), an investment manager that has an 11-year investing track record with assets under management of greater than $300 million. IsZo manages a fund by the name of IsZo Capital LP.

IsZo Capital LP has maintained a brokerage account with Jefferies LLC (“together with its affiliates, “Jefferies” or the “Bank”) since 2016 and the Bank has charged us over $28 million in fees and interest. Despite this, Jefferies’ General Counsel could not even spell our name correctly in our correspondence. That, however, is the least of your problems.

Can you imagine if any of you got a call one morning and your brokerage firm told you that it was taking millions of your dollars indefinitely and charging you for it after overcharging you $28 million? That’s what you have done and continue to do to my fund. You would not accept that for your money, and as a Board of Directors (the “Board”) you are required to take action to remedy the situation with IsZo Capital LP.

While both my counsel and I have previously written to you concerning the seemingly illegal and fraudulent practices being engaged in by Jefferies’ Prime Brokerage and various high-ranking Jefferies’ personnel, including Mr. Handler, I have set forth below a summary of Jefferies’ fraudulent and manipulative conduct, as I have now been compelled to file a FINRA arbitration to obtain relief for the millions you have misappropriated. Before I get to that, you should know that I have a track record of pursuing remedies against those who engage in fraudulent and illegal behavior.

For instance, just a few days ago, IsZo obtained a favorable decision for shareholders of Nam Tai Property Inc. (NYSE:NTP) in connection with our efforts to rid the company of individuals entrenched in fraud, self-dealing and incompetence.1

The salient facts concerning your broker-dealer’s years-long fraud, as detailed in our Statement of Claim, include:

  • After paying over $28 million to Jefferies in short fees and interest expense over the last several years, IsZo sent Jefferies a letter in June 2021 instructing Jefferies to move all cash and securities of IsZo Capital to an alternative broker custodian.
  • During the last few years, IsZo Capital had become increasingly uncomfortable holding cash and securities at Jefferies as sudden changes in margin requirements were increasingly common and always inexplicable. In addition, we have never received a single quote from the stock or bond loan department that was cheaper than competitors’ and in dealing with the margin department and the management of Jefferies Prime Brokerage, incompetence was the rule not the exception.
  • Almost immediately, in July 2021, Jefferies retaliated by seizing over $5 million of cash from IsZo Capital’s account.
  • Jefferies’ explanations have been bizarre, inconsistent and the stuff of bad nightmares. During one conference call, Jefferies maintained that the seven legacy short positions, the only positions remaining in the account, should be viewed as “meme stocks,” a comparison that is ludicrous, bizarre and entirely unsupported.
  • On October 18, 2021, Jefferies finally provided a written response, a little over a mere page in length, but it was hardly a substantive, coherent or serious response. IsZo Capital’s attorneys received a letter from Michael J. Sharp, Esq., the Executive Vice President and General Counsel of Jefferies Financial Group Inc., and General Counsel, Secretary and Executive Vice President of Jefferies Group LLC. He provided less than half a page of simple mathematical calculations that have no basis in fact, as his premise that the positions could “materially move” is knowingly false. Mr. Sharp further misapplied and tortured FINRA rules and the customer agreement to suggest that Jefferies could continue to steal my fund’s money to secure positions that do not exist. Tellingly, in providing “new” collateral/margin calculations for these non-existent positions, he admitted that the “old” calculations that Jefferies had been using have been entirely fabricated and false.
  • In truth, there is no market for these worthless positions that do not, in reality, exist and none of these positions will ever trade again and simply cannot be closed because the securities no longer exist.
  • The four equity positions (Capital Corp. of the West, Franklin Credit Management Corp., CPI Corp. and Orleans Homebuilders) were in companies that filed for bankruptcy years ago. For example, Capital Corp of the West was shut down and liquidated over 13 years ago! None of these cases resulted in common stockholders receiving new equity after the companies emerged from bankruptcy. Yet Jefferies continues to require cash collateral and charge short interest rebate for these positions that no longer exist in any shape or form.
  • The collateral required by Jefferies on the three “bonds” is similarly irrational. Two of the positions, Massey Energy Co. and Vantage Drilling, are not even bonds; they are escrow receipts, i.e., just a record that the account used to own some of the original bonds that were canceled during the bankruptcy emergence. The Chapter 11 plans were approved years ago, and it is clear that the escrow receipts are not securities and have no claim on any assets.
  • The position in Sears Holding Corp., a private bond that never traded once in the public markets, has been widely reported to be administratively insolvent. Yet, the collective collateral Jefferies requires for these “companies” is nearly $500,000 in the Jefferies’ margin reports plus an additional $2 million requirement that Jefferies explains is needed to make it feel “comfortable.”
  • All of this information is available in public filings and demonstrates that Jefferies’ statements to IsZo Capital in emails and letters constitute obvious fraud.
  • Jefferies’ own Portfolio Margin Detail (Report Date: 10/19/2021) for the seven legacy short positions shows a collective Market Price of 0.0000, a Market Value of (200.00), a Delta Exposure of nothing, a Volatility of nothing and a Trading Volume/Open Interest of nothing. Plainly, there is no market for these positions, to the extent they even can be said to “exist,” and no justification to misappropriate millions of IsZo Capital’s funds.
  • As Jefferies is well aware, there is no mechanism to cancel these seven legacy short positions, and they cannot be transferred or closed. Furthermore, Jefferies has threatened that its seizure and misappropriation will therefore continue indefinitely. That’s called theft and fraud. And grand larceny and fraud are felonies punishable by jail time.
  • Furthermore, Jefferies has not only seized IsZo Capital’s funds, but it has also prohibited any transactions by IsZo Capital. Thus, Jefferies has taken full control over IsZo Capital’s cash while it continues to charge IsZo Capital fees and interest to hold shorts in securities that no longer exist! Again, this is obviously fraud and grand larceny!
  • In sum, Jefferies has and continues to engage in an illegal scheme by fraudulently charging my fund in excess of $28 million and misappropriating millions more now held captive indefinitely. IsZo Capital believes that since Jefferies has no problem charging fees and interest and non-existent positions, it’s very possible that all of the fees and interests IsZo Capital has been charged may be from non-existent positions.

As troubling as your conduct has been and continues to be, it is even more frightening and alarming that, at every turn, there have been high-level Jefferies personnel that have been more than willing to blindly parrot the false Jefferies narrative, from Senior Vice Presidents to Managing Directors to Division Heads to General Counsel to the CEO to you.

I do not take commencing a litigation against you lightly. I have spent months with my sophisticated and experienced team of lawyers seeking to obtain any information that you have to assess Jefferies’ position, which one of the Jefferies’ lawyers stridently stated was “non-negotiable.”

But truth is stranger than fiction. IsZo is extremely confident in its position and is very happy to litigate the matter in public. IsZo is a fund that believes in “doing the right thing” and enjoys fighting criminals in the public arena.

Jefferies and its Employees are engaging in fraud and have no defense for their conduct!

Holding Cash to Collateralize Positions That No Longer Exist and Charging Interest and Fees on Non-Existent Securities Constitutes Theft and Fraud and is Clearly Illegal.

Finally, I would Like to Warn All of Your Customers and Clients That Holding Cash and Securities at Jefferies is Dangerous and Risky. We Believe the Board has a Duty To Inform All of its Customers and Clients of This Risk and Of Jefferies’ Actions.

Brian Sheehy, MD MA CFA

IsZo Capital


1 Press release issued by IsZo on November 10, 2021 (link here).


IsZo Capital

Brian Sheehy

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