By Richard Weizel
NEW HAVEN, Conn., March 7 A federal jury on
Friday found former Jefferies Group Inc trader Jesse Litvak
guilty of defrauding clients on mortgage bond trades made after
the financial crisis.
Litvak, 39, was convicted on all 15 counts he faced,
including 10 of securities fraud. He faced up to 20 years in
prison on each securities fraud count.
Prosecutors accused Litvak of cheating clients out of more
than $2 million between 2009 and 2011 by inflating bond prices,
lying about how much Jefferies paid for them and inventing
They said he wanted to boost Jefferies' profit and his own
pay, using the extra revenue to offset other trading losses. The
trial lasted 2-1/2 weeks.
"Today's verdict shows plainly and powerfully that Wall
Street professionals are not above the law," U.S. Attorney
Deirdre Daly in Connecticut said in a statement.
"The jury rightly rejected Mr. Litvak's shameful claim that
he did nothing wrong because many on Wall Street engage in the
Litvak rubbed and shook his head as the verdict by the
seven-man, five-woman jury in New Haven was read. The married
father of two turned to look at his parents and crying wife in
Chief Judge Janet Hall's courtroom.
"We're gratified the jury returned the verdict it did,"
Assistant U.S. Attorney Eric Glover told reporters outside the
courtroom. "Justice was served."
His lawyer, Patrick Smith, said an appeal was planned.
"Mr. Litvak is obviously very disappointed in the verdict,"
Smith said. "The court made several serious errors that
undermined Mr. Litvak's ability to present his full defense."
The verdict was a victory for the government in its effort
to punish financial misconduct that occurred after the financial
Most of the recent litigation against banks had focused on
pre-financial crisis conduct, but Litvak's prosecution was the
first under a law banning major fraud against the United States
through the $700 billion federal bailout known as the Troubled
Asset Relief Program (TARP).
"This landmark case is likely to embolden prosecutors to be
even more aggressive," said Jordan Thomas, a partner at Labaton
Sucharow and former federal prosecutor. "Defendants awaiting
trial, and individuals under investigation, will have to think
twice about going the distance because of the government's
demonstrated skill in successfully bringing this type of case."
Litvak also was found guilty of one count of fraud connected
to TARP and four counts of making false statements.
Jefferies, now part of Leucadia National Corp,
disclosed in January that it agreed to pay $25 million to
resolve U.S. government probes related to Litvak, whom it fired
in December 2011.
Neither Jefferies nor Leucadia was accused of wrongdoing in
the criminal case, which was unveiled in January 2013.
ACTIVE GOVERNMENT PROBE
The U.S. government disclosed in January that it was
investigating fraud in the trading of residential
mortgage-backed securities, including in transactions stemming
from the bailout.
Prosecutors said the United States was victimized because
some of Litvak's clients, such as the large asset manager
AllianceBernstein Holding LP, participated in the
Public-Private Investment Program, a TARP initiative designed to
spur demand for troubled mortgage debt.
Glover said on Friday that the investigation was
"continuing, ongoing and active."
Litvak's defense lawyers had argued that his clients at
Jefferies were "sophisticated" investors capable of analyzing
whether the bond prices they were paying were fair.
His lawyers said Litvak's activity was common in the bond
industry and that Jefferies objected only when faced with the
possible loss of a big client.
Smith said Litvak's appeal would focus partly on the judge's
refusal to admit evidence that Jefferies had condoned similar
conduct by other traders who were not punished.
Litvak did not testify in his own defense during the trial.
He also faced a U.S. Securities and Exchange Commission civil
He remained free on bail, and his sentencing was scheduled
for May 30.
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.