Jefferies Financial Group Inc.

Many aspects of our business involve substantial risks of legal

and regulatory liability. In the normal course of business, we have

been named as defendants or co-defendants in lawsuits involving

primarily claims for damages. We are also involved in a number

of judicial and regulatory matters, including exams, investigations

and similar reviews, arising out of the conduct of our business.

Based on currently available information, we do not believe that

any matter will have a material adverse effect on our

consolidated financial statements.

In July 2024, we commenced litigation against the former

portfolio manager of 3ǀ5ǀ2 Capital ABS Master Fund LP (the

“Fund”) and a variety of individuals and entities (collectively, the

“defendants”), alleging that the defendants engaged in a

longstanding Ponzi scheme resulting in the misappropriation of

approximately $106 million from investors in the Fund and in

certain related accounts, including a separately managed

account held by the Company. In June 2025, we commenced

litigation against First Fed Bank alleging that it participated in and

aided and abetted the Ponzi scheme. The Company has

recognized a loss of$17.2 million in respect of our investment in

the Fund. We anticipate that this litigation, which will not be

resolved in the near term, will result in the recovery of some or all

of our losses but cannot, with any reliable accuracy, estimate

how much we will be able to recover, or the outcome of this

litigation, which may lead to additional proceedings.