Jesse Litvak, a former Jefferies Group LLC (JEF) bond trader, is scheduled to go on trial again. It was just two years ago that a jury found him guilty of fraud when he misled customers about the price he paid for residential mortgage-backed bonds.
The criminal charges against him were originally brought by the US attorney’s office in Connecticut three years ago. Prosecutors accused him of bilking customers of $2M when he inflated the prices of what he’d actually paid for the bonds. Because of purported misstatements, professional investment managers and hedge funds overpaid for the residential-mortgage-backed bonds. Meantime, Litvak allegedly made $100K more for his firm for every transaction than was disclosed to his customers.
The jury, in 2014, found that Litvak violated securities laws and they found him guilty on 15 criminal counts, including multiple counts of securities fraud. Litvak had pleaded not guilty to all of the charges. He was then sentenced to two years in prison and ordered to pay a $1.75M.
The following year, however, the Second U.S. Circuit Court of Appeals reversed the criminal conviction on the fraud charges against Litvak, finding that prosecutors’ evidence was not sufficient for the jury to find that his “misstatements were material to the government.” The juridical panel also vacated the securities fraud conviction against him, finding that the lower court improperly left out certain expert testimony. The Second Circuit ordered a new trial.
This time, however, the jury won’t have to determine whether Litvak bilked the government, as the appeals court dismissed those charges. However, Litvak is not allowed to provide testimony showing that other broker-dealers inflated bond prices in a similar manner or that Wall Street compliance programs have changed since he was indicted.
The SEC also filed civil charges against Litvak. The regulator claims that the ex-bond trader made over $2.7M in additional revenue for his firm through his fraud, which enhanced his career at Jefferies, as well as his bonuses.
In 2014, Jefferies agreed to pay $25M to settle SEC charges accusing the brokerage firm of not properly supervising employees on its MBS desk, including Litvak.
Jesse Litvak, A Symbol of the Government Crackdown on Wall Street, Goes on Trial Again, The Wall Street Journal, January 3, 2017