Former Jefferies trader must face trial on TARP charges -judge
NEW YORK Oct 21 (Reuters) - A former Jefferies Group Inc managing director must face trial on criminal charges that he defrauded a federal bank bailout program by falsifying the prices of mortgage securities, a Connecticut federal judge ruled on Monday.
The prosecution of Jesse Litvak, a former Jefferies senior trader, was the first brought under a 2009 law banning "major fraud" against the United States through the Troubled Asset Relief Program, according to U.S. authorities.
U.S. District Judge Janet Hall in New Haven, Connecticut, rejected Litvak's claim that the indictment against him, unveiled in January, should be dismissed because it lacked sufficient evidence to support the charges. That is a question to be answered at trial, she said.
"Inasmuch as that this argument is actually an attack on the government's evidence against Litvak, it is premature," Hall wrote.
Ross Garber, a defense attorney for Litvak, did not immediately respond to an email seeking comment.
Prosecutors allege that Litvak defrauded a number of public and private funds, generating more than $2.7 million of revenue for Jefferies.
The funds included participants in the Public-Private Investment Program, which was designed to distribute TARP funds to resuscitate the failing mortgage-backed securities market.
The alleged victims include funds set up by AllianceBernstein Holding LP, BlackRock Inc, George Soros' Soros Fund Management LLC, Daniel Loeb's Third Point LLC, and Wellington Management Co, according to the indictment.
Jefferies is not accused of wrongdoing. Brokerage industry records show the company fired Litvak in December 2011.
A Jefferies spokesman declined to comment on the case.
Prosecutors say Litvak misrepresented prices of residential mortgage-backed securities in trades he helped arrange and then kept the differences between the prices paid by buyers and paid to sellers.
He was also accused of inventing a fictional third-party seller for some trades of bonds in Jefferies' own inventory, allowing him to charge commissions that he would not otherwise have collected.
According to prosecutors, Litvak used the trades to help offset a plunge in his overall trading revenue, a factor in his compensation. They said he lost more than $10 million on trading in 2011, compared with a profit of more than $40 million in 2009.
The indictment included 11 counts of securities fraud, one court of TARP fraud and four counts of making false statements. Litvak faces up to 20 years in prison on each count.
The U.S. Securities and Exchange Commission has filed a parallel civil action against Litvak.
The cases are U.S. v. Litvak, U.S. District Court, District of Connecticut; and SEC v. Litvak in the same court, No. 13-00132.
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