March 5, 2014 / 11:14 PM / 4 years ago

Frauds or fibs? Ex-Jefferies trader's fraud case goes to jury

NEW HAVEN, Connecticut (Reuters) - Prosecutors said greed motivated former Jefferies Group Inc trader Jesse Litvak to defraud the government on mortgage securities, while defense lawyers said their client’s “fibs” were perfectly acceptable, during closing arguments at a closely-watched trial on Wednesday.

Jesse Litvak, a former managing director at Jefferies Group Inc, walks to the U.S. District Court in New Haven, Connecticut, March 4, 2014. REUTERS/Michelle McLoughlin

Jurors in the New Haven, Connecticut federal court will on Thursday begin weighing the fate of Litvak, 39, who is accused of cheating major Wall Street firms, pension funds and charities through overcharges out of more than $2 million to boost profit for Jefferies and himself, and offset trading losses elsewhere.

The case is the first 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.

Prosecutors said the United States was a victim because some of Litvak’s clients, such as the large asset manager AllianceBernstein Holdings LP, participated in TARP’s Public Private Investment Program, which was intended to help rebuild a market for troubled mortgage debt.

While most litigation linked to the 2008 financial crisis has addressed conduct that predated it, Litvak’s case is different because the alleged wrongful conduct began later.

“Jesse Litvak may have worked in a complicated industry, but what he did was very simple,” Assistant U.S. Attorney Jonathan Francis told the jury of seven men and five women. “He lied to his customers to boost profits. That is fraud, and that is a crime.”

Francis recalled testimony from February 19 in which AllianceBernstein executive Michael Canter said he became suspicious of Litvak only after receiving a misdirected spreadsheet by email that detailed his trades.

“If it weren’t for a spreadsheet mistakenly sent by a salesperson at Jefferies to AllianceBernstein, no one would have ever known what Mr. Litvak was doing,” Francis said. “And what did he do when he was confronted? (He) said it had been a bad year and he had to do whatever he could to make more money.”

Defense lawyer Patrick Smith countered, as he often has since opening statements on February 18, that Litvak’s activity had been approved by his former bosses, and amounted to “fibs that are accepted as part of the culture of Wall Street.”

He likened the seriousness of the activity to the commission of a foul at a pick-up basketball game.

“Jesse Litvak committed no crime,” Smith told jurors. “Many of the so-called ‘victim witnesses’ (testified) that they would have still done the trades from the prices quoted because they were getting good bonds at good prices.”

Smith also said his client never thought he was committing a crime. “Jesse Litvak’s state of mind was that this was something all traders did, and that it was an accepted practice,” Smith said. “He never thought of it as fraud, and it wasn’t fraud.”

Litvak did not take the witness stand in his defense.

Jefferies is now part of Leucadia National Corp. Neither company was charged.

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

A U.S. Securities and Exchange Commission civil lawsuit is also pending against Litvak.

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.

Additional reporting by Jonathan Stempel in New York; Editing by Tom Brown

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