Ex-Jefferies Trader Deserves 9-Year Sentence, U.S. Says

Former Jefferies & Co. Managing Director Jesse Litvak, who was convicted earlier this year of fraud in the trading of mortgage-backed securities, should be sentenced to nine years in prison, the U.S. said.

Litvak was convicted in the only criminal case against an individual in connection with a U.S. program that used bailout funds to spur investment in mortgage-backed securities. He is scheduled to be sentenced July 23 in New Haven, Connecticut.

Litvak “perpetrated a multi-year, multi-victim, multimillion-dollar securities fraud scheme” following a “life full of privilege and legitimate opportunities,” the government said in a court filing. He should receive nine years in prison and a $5 million fine when he is sentenced before U.S. District Judge Janet C. Hall. Sentencing guidelines call for a range of nine years to 11 1/4 years, the U.S. said.

The case raised questions across Wall Street about just how much trickery is allowed in trading as witnesses at Litvak’s trial testified that his tactics were common. Mortgage-bond traders at JPMorgan Chase & Co., Morgan Stanley and Royal Bank of Scotland Group Plc were placed on leave after other banks received inquiries from U.S. regulators.

False Statements

Litvak, 39, of New York, was found guilty by a federal jury on March 7 of securities fraud and making false statements as well as fraud connected to the U.S. government’s Troubled Asset Relief Program. He was accused of misrepresenting how much sellers were asking for securities and what customers would pay, and pocketing the difference for Jefferies, prosecutors said.

He’s the only person to have been charged with fraud in relation to the Public-Private Investment Program, an initiative that used more than $20 billion from TARP to spur investment in mortgage-backed securities that stayed on the books of financial institutions.

Prosecutors, in a June 27 sentencing memo, said Litvak’s upbringing should have instilled in him a sense of right and wrong. Instead his “personal greed and arrogance fueled a fraud that he carried out without remorse,” they said.

Litvak’s attorneys said he should receive no more than 14 months in prison, arguing that although he isn’t perfect and has struggled at times, he’s a “genuine, humble and selfless man” whose actions had no impact on the investment decisions of his customers and their returns.

‘Not Unique’

“The conduct that Mr. Litvak engaged in was not unique: indeed, the trial showed that victim witnesses as well as former colleagues and supervisors at Jefferies made misrepresentations during negotiations,” Litvak’s lawyers wrote in their sentencing memo. “What is unique and what makes Mr. Litvak’s case stand out as the first of its kind is that no one else has ever been prosecuted criminally for the types of misrepresentations at issue in this case.”

Litvak asked Hall in April to throw out his conviction, saying sophisticated money managers make investments based on their own analysis.

Jefferies, which is owned by Lecuadia National Corp., agreed earlier this year to pay $25 million to settle U.S. criminal and civil probes of suspected abuses in the trading of mortgage-backed securities.

The case is U.S. v. Litvak, 13-cr-00019, U.S. District Court, District of Connecticut (New Haven).

(An earlier version of this story was corrected to reflect the July 23 sentencing date.)

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