Ex-Jefferies & Co. managing director Jesse C. Litvak asked a federal judge in Connecticut to throw out charges that he defrauded customers of more than $2 million on trades of residential mortgage-backed securities.
Litvak, who has pleaded not guilty, was indicted in January on charges of securities fraud, fraud connected to the Troubled Asset Relief Program and making false statements to the federal government. Alleged victims include investment funds, among them six established by the U.S. Treasury Department in 2009 as part of its response to the financial crisis.
Prosecutors accuse Litvak of misrepresenting the asking price of sellers of residential mortgage-backed securities to buyers or vice versa, keeping the difference for Jefferies. Litvak’s attorneys asked U.S. District Judge Janet C. Hall to dismiss the charges during a hearing in New Haven today.
Patrick Smith, Litvak’s attorney, argued that any misstatements are immaterial to the case because the indictment doesn’t address how investors were “cheated out of something.”
“There is no allegation that what was sold was misrepresented,” Smith said.
Smith also argued that managers of the Public-Private Investment Program created to distribute TARP funds selected the bonds and the program was a “private vehicle managed by a private contractor.”
Assistant U.S. Attorney Jonathan Francis said the law that established the funds authorizes the Treasury Department to delegate its purchasing authority, which doesn’t mean it gave up its jurisdiction over the program.
“There are requirements, and Treasury has a right to look at the books,” he said.
Hall declined to rule on Litvak’s motion following the hearing, saying she would take it under advisement. Litvak, who is free on a $1 million bond, is scheduled to go on trial in February.
Litvak is charged with 11 counts of securities fraud and may face as long as 20 years in prison on each count if convicted. He is also charged with one count of TARP fraud, which carries a maximum penalty of 10 years in prison, and four counts of making false statements to the government, each punishable by as much as five years in prison.
The case is U.S. v. Litvak, 13-cr-00019, U.S. District Court, District of Connecticut (New Haven).