Bond executive cross-examined over ex-Jefferies banker's trades

NEW HAVEN, Conn. Thu Feb 20, 2014 5:14pm EST

NEW HAVEN, Conn. Feb 20 (Reuters) - A lawyer for Jesse Litvak, on trial on charges he defrauded clients and the United States on bond trades, on Thursday tried to discredit one of the government's main witnesses against the former Jefferies Group Inc banker.

Michael Canter, senior vice president and director of securitized assets at AllianceBernstein Holding LP, had testified on Wednesday that he had yelled at Litvak and pressed for an investigation after reviewing a spreadsheet that suggested he was being shortchanged on trades.

But during cross-examination, Litvak's attorney, Patrick Smith, got Canter to admit that the prices the defendant gave him did not appear bad at the time.

"If you didn't like the price, you just didn't have to do it (the trade), isn't that correct?" Smith said. "You always had the ultimate opportunity not to make the bid, but you believe you were getting a good price at the time."

"Yes, we always had the control," Canter responded, pausing to drink from a water bottle. "With what we knew at the time, it seemed like a good price.

"Isn't it true that only later, upon discovering the price could have been better, that you became upset?" Smith then asked.

"Yes," Canter responded.

The case is the first brought under a 2009 law banning major fraud against the United States through the $700 billion federal bailout known as the Troubled Asset Relief Program, or TARP.

AllianceBernstein was one participant in a TARP program intended to help rebuild a market for troubled mortgage debt.

Prosecutors have accused Litvak of cheating customers on residential mortgage-backed securities trades in a $2 million scheme designed to boost Jefferies' revenue and his pay.

INDUSTRY PRACTICES

Smith had previously conceded that Litvak did not always tell the truth when advising investors, but simply did what his supervisors told him to do.

On Thursday, he asked Canter whether AllianceBernstein, which ended 2013 with $450.4 billion of assets under management, at times also posted misleading prices, and that this was an accepted practice among brokers.

"So, your interpretation is that when it benefits AllianceBernstein, when it favors your investors, then it's OK?" Smith asked.

Canter, after hesitating, answered: "I believe it is OK."

On redirect questioning, Assistant U.S. Attorney Jonathan Francis sought to counteract the idea that Litvak's activities were considered acceptable in the industry.

"What was your exact complaint about the way Mr. Litvak had conducted himself?" he asked Canter.

"We were asked to raise our bids when it turned out we didn't have to," Canter replied. "I would characterize what he did as lying, and it turned out that it was something he had been doing continuously."

Litvak was fired by Jefferies in December 2011 and was indicted in January 2013.

He has pleaded not guilty to 10 counts of securities fraud, one count of TARP fraud and four counts of making false statements. If convicted, Litvak faces up to 20 years in prison on each fraud count.

The defendant also faces related U.S. Securities and Exchange Commission civil charges.

After jurors were dismissed for the day, prosecutors told the presiding judge, Chief Judge Janet Hall, that they expect to question more alleged fraud victims on Friday and Monday, and could rest their case on Tuesday.

The cases are U.S. v. Litvak, U.S. District Court, District of Connecticut, No. 13-cr-00019; and SEC v. Litvak in the same court, No. 13-00132.

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