Ex-Jefferies Trader Gets 2 Years for Lying on Prices, Again

  • Jesse Litvak was convicted for his mortgage-securities tactics
  • Judge rejects claim that methods didn’t lead to any real harm

Jesse Litvak sought any edge he could find on Wall Street.

The former Jefferies LLC managing director was an aggressive negotiator when trading mortgage-backed bonds, bending the truth or even falsifying chat transcripts in order to maximize his earnings.

On Wednesday Litvak learned his punishment: two years behind bars and a $2 million fine for lying to a customer about bond prices. Litvak was found guilty at a trial in January -- although on just one of 10 counts -- after his first conviction was reversed on appeal.

"Your victims were harmed by your lies," said U.S. District Judge Janet C. Hall. "They would not have paid you what they paid if you told the truth. You did what you did to make more money for yourself. Being pressed for money or wanting more money is never an excuse or even an explanation for a crime."

Litvak’s arrest in January 2013 marked the onset of a crackdown on shady sales practices in the opaque world of securities backed by assets such as home loans. The probe has led to charges against at least seven other traders and the departure of nearly two dozen. Three former traders at Nomura Securities go on trial next week.

"These were the cowboys of Wall Street," said Peter Henning, a law professor at Wayne State University in Detroit. "If you were a bond trader, you could almost do anything you wanted, and not anymore."

Justice Road

Litvak was initially convicted of 15 counts of securities fraud during his first trial in 2014 and ordered to spend two years in prison and pay a $1.75 million fine. An appeals court reversed the conviction and sent the case back for another trial, saying that he should have been allowed to present evidence from his own expert that misrepresentations between financial professionals were common. 

This time, he received the sames prison sentence and a larger fine. The judge gave him about four months to report to prison. After the verdict, Litvak hugged family members and left without comment.

While bond trading takes place between sophisticated players on relatively equal footing trying to get the best of each other, the jury in New Haven, Connecticut signaled that Litvak crossed the line when he altered the transcript of an electronic chat to use to his advantage.

After his second conviction, Litvak’s lawyers asked Hall to sentence him to a pay a fine plus eight months of confinement at his home in Boca Raton, Florida, where his wife has a dental practice. They said the circumstances surrounding his conviction have changed "dramatically," given he is only facing punishment for one count instead of 15.

They also argued that the government has handled similar bond-trading infractions via regulatory sanctions and fines, rather than criminal prosecutions.

Jesse Litvak’s home in Florida

Source: government filing in U.S. District Court

"We come before your honor with different circumstances that compel a different result,” Dane Butswinkas, one of Litvak’s attorneys, told Hall on Wednesday. “The different outcome is a factor. The other resolutions of cases that are similar is a factor."

Prosecutors urged the judge to impose a harsher punishment than Litvak received the first time, saying he showed no remorse, blamed one of his alleged victims and criticized the jury that convicted him. Federal guidelines called for a sentence of 9 to 11 years, they said.

Litvak had "every advantage in life" and his career gave him "wealth beyond the dreams of most Americans," along with a multimillion dollar apartment on Manhattan’s Upper East Side and a "luxurious" six-bedroom vacation home in New York’s Hamptons, according to prosecuters’ court filings.

“This sentence sends an unequivocal message that fraud in the residential mortgage-backed securities trading market will be met with serious punishment,” Connecticut U.S. Attorney Deirdre Daly said in a statement.

In court Wednesday, Hall said a key witness’s testimony about Litvak’s tactics was “very compelling.” He “regularly and repeatedly” misrepresented prices, she said.

“The investors were harmed because they paid more money to Jefferies and more likely more than they would have paid if Mr. Litvak hadn’t lied,” Hall said.

Hall last week rejected Litvak’s request to throw out his latest conviction. He will have to look to a federal appeals court in Manhattan if he hopes to avoid prison.

Tweaking Chat Trips Up Ex-Jefferies Bond Trader Jesse Litvak

The case has been closely monitored by bond traders, especially others who have been charged in the crackdown on deceptive sales tactics. 

The sentencing came about a week before jury selection is set to begin about an hour to the north, in Hartford, in the trial of three former Nomura Holdings Inc. traders. Ross Shapiro, Tyler Peters and Michael Gramins are accused of similar conduct. A former Cantor Fitzgerald & Co. mortgage-bond trader, David Demos, was indicted in December on fraud charges for allegedly lying to customers.

While prosecutors in the Litvak case proved their case to the jury, Henning said it "wasn’t the wide ranging fraud it was first touted as" and may get another close look from a federal appeals court.

"The government achieved one important thing with its prosecution" of Litvak, Henning said, "sending a message to financial firms to be more careful. Firms have put a much greater emphasis on compliance, even in dealing with sophisticated clients."

The case is U.S. v. Litvak, 13-cr-00019, U.S. District Court, District of Connecticut (New Haven). The other case is U.S. v. Shapiro, 15-cr-00155, U.S. District Court, District of Connecticut (New Haven).

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