Trial starts for Conn. trader charged with fraud
Feb 18, 2014, 9:24 PM
NEW HAVEN, Conn. (AP) – A former investment banker charged with defrauding investment funds established as part of the government’s response to the financial crisis lied to clients about bond prices to increase profits, a federal prosecutor told a jury Tuesday during opening statements at the former executive’s fraud trial.
But Jesse C. Litvak’s attorney said the government was alleging fraud based on “harmless fibs” and that his client sold bonds at great prices to sophisticated buyers. Litvak engaged in typical sales tactics, followed company rules and the government couldn’t prove any losses, said defense attorney Patrick J. Smith.
“Simply telling a lie does not make you guilty of committing a federal crime,” Smith said.
Litvak, of New York City, was a registered broker-dealer and managing director at Jefferies & Co. Inc. who worked on the company’s trading floor in Stamford. He is charged with securities fraud, Troubled Asset Relief Program fraud and making false statements to the federal government. His trial began Tuesday in New Haven.
Authorities say Litvak defrauded funds established by the Treasury with government bailout money and private investment funds of more than $2 million. According to the indictment in January 2013, Litvak was terminated from the company in 2011.
The indictment alleges Litvak engaged in a scheme to defraud customers on residential mortgage-backed securities trades by misrepresenting asking and selling prices, keeping the difference between the price paid by the buyer and the price paid to the seller for Jefferies. In other transactions, Litvak misrepresented to the buyer that bonds held in Jefferies’ inventory were being offered for sale by a fictitious third-party seller, which allowed Litvak to charge the buyer an extra commission that Jefferies was not entitled to, authorities said.
“Mr. Litvak lied to his clients to get more money,” said prosecutor Eric Glover.
He said the scheme unraveled after a customer was accidentally sent a spreadsheet that showed Litvak bought bonds at prices lower than he claimed. He said jurors would see negotiations on chat rooms “and what the truth actually was.”
Smith has denied Litvak defrauded anyone. The profits from the trades went to his company, not Litvak, he said.
“The central problem with this case is that it’s built around a fiction,” Smith said. “The fiction is that bonds were somehow available at a lower price.”
In establishing the bailout program, the government left it up to private fund managers to decide which bonds to buy, Smith said.
The indictment charges Litvak with 10 counts of securities fraud, which carry up to 20 years in prison on each count; one count of Troubled Asset Relief Program fraud, which carries a maximum term of imprisonment of 10 years; and four counts of making false statements, which each carry a maximum prison term of five years if convicted.
Jefferies disclosed last month in a regulatory filing that it agreed to pay $25 million to settle federal criminal and civil investigations related to mortgage-backed securities. The company noted that it terminated a trader in 2011 who was then indicted in January 2013.
The U.S. attorney’s office and the company declined comment on the settlement.
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