Jefferies has been involved in an "undisclosed SEC investigation" that goes back to April, according to a report from Disclosure Insight that it said is based on data received from the SEC under the Freedom of Information Act. While John Gavin, president of Disclosure Insight, reported that the investigation is being handled by the Enforcement Division, it’s unclear what the investigation is about, and Jefferies said it didn’t know about it. Here’s today’s note in its entirety:

Based on data we acquired from the SEC under the Freedom of Information Act, as recently as 28-Sep-11, it appears Jefferies Group has been recently involved in an undisclosed SEC investigation that goes as far back as Apr-11. A prior response from May-09 showed no signs of SEC investigative activity. Given the current environment for financial institutions (e.g., debt issues in Europe, new regulations in the U.S. and abroad, market volatility, etc.) and the number of disclosed SEC investigations at other financial institutions, our data point on JEF should not be ignored.

This would not be the first time that JEF failed to disclose the existence of an SEC investigation while it was active. Some possible reasons specific to Jefferies that could be behind the responses we’ve recently received from the SEC include: An internal controls issue involving an account difference with a clearing bank. Initially classified by Jefferies as a significant deficiency, it was later determined to be a material weakness (which is worse than a significant deficiency). This weakness was found to have a 5 year tail and was sufficient to cause a delayed NT 10-K filing in Feb-11 and a $34.5 million hit to the income statement (on a $39 million error). The timing of our FOIA data supports this possibility, though it is important to note Jefferies’ claim that the internal controls exposure was resolved.

An alternate, but less likely cause could be a closed FINRA investigation involving auction rate securities, which settled in Apr-11.  It could be something unrelated to either of these scenarios regarding JEF or possibly another company.  With the internal controls and FINRA issues seemingly over, the greater risk is that there is something in the background that is presently unknown to the market.

The SEC, per its policy, declined comment.

While it's impossible to say what this amounts to, if anything at all, it’s certainly worth noting in the context of the day and the environment.  Current Disclosure Insight lists around 2 dozen companies with undisclosed investigations. Jefferies reported it has a limited number of routine regulatory reviews in process, all of which are insignificant in scope and absolutely immaterial to Jefferies. [CNBC.com, 11/3/11]