* Jesse Litvak said to defraud TARP, investors
* SEC files parallel civil charges
* Defendant pleads not guilty
By Jonathan Stempel
Jan 28 A former Jefferies Group Inc
managing director has been charged with defrauding a federal
bank bailout program and investors in mortgage securities by
falsifying prices and the identities of sellers, in a bid to
make more money for his employer, U.S. authorities said on
The criminal case against Jesse Litvak, a former senior
trader on Jefferies' trading floor in Stamford, Connecticut, is
the first under a 2009 law banning "major fraud" against the
United States through the Troubled Asset Relief Program, TARP
Special Inspector General Christy Romero said on a conference
Investigators said Litvak's scheme generated more than $2.7
million of revenue for Jefferies and defrauded a variety of
public and private funds. They said these funds included
participants in the Public-Private Investment Program designed
to revive the moribund market for mortgage-backed securities.
Among the defrauded investors were 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, the government said.
U.S. Attorney David Fein in Connecticut, who announced the
criminal charges, described Litvak's conduct as "reprehensible,"
and said the investigation is ongoing.
Authorities said Litvak, 38, was arrested without incident
at his New York home on Monday, and later pleaded not guilty to
16 criminal charges before U.S. Magistrate Judge Holly
Fitzsimmons in Bridgeport, Connecticut.
Bail was set at $1 million, and Litvak's case was assigned
to U.S. District Judge Janet Hall in New Haven. A tentative
trial date was set for May 6. The U.S. Securities and Exchange
Commission filed related civil charges.
Patrick Smith, a partner at DLA Piper representing Litvak,
said his client looks forward to clearing his name at trial.
"Jesse Litvak did not cheat anyone out of a dime," Smith
said in a statement. "In fact, most of these trades turned out
to be hugely profitable."
Jefferies fired Litvak in December 2011, brokerage industry
records show. The New York-based company was not charged with
wrongdoing. A spokesman, Richard Khaleel, declined to comment.
MOUNTING TRADING LOSSES
Litvak was accused of misrepresenting prices of residential
mortgage-backed securities in trades he helped arrange, and
keeping 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 that were in Jefferies' own
inventory. Prosecutors said this let him charge commissions to
which he was not entitled.
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
Litvak was charged with 11 counts of securities fraud, one
count of TARP fraud, and four counts of making false statements.
Each securities fraud count has a maximum 20-year prison term.
According to brokerage industry records, Jefferies fired
Litvak on Dec. 21, 2011, after concluding that he had not been
"forthright" with a customer in executing a trade.
A customer complaint about trades involving Litvak was
settled last March for $2.24 million, the records show. Litvak
joined Jefferies in April 2008.
Romero said her office, which examines TARP and other kinds
of financial fraud, has been responsible, along with other law
enforcement authorities, for criminal charges against 121
The cases are U.S. v. Litvak, U.S. District Court, District
of Connecticut; and SEC v. Litvak in the same court, No.