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From Securities Regulation Daily, January 27, 2017

Jury acquits Jefferies broker of all but one securities fraud charge

By Anne Sherry, J.D.

Jesse Litvak’s second trial for RMBS-related securities fraud ended in a conviction on only one of ten counts. Litvak, the Jeffries trader alleged to have defrauded entities transacting in residential mortgage-backed securities, won a new trial when the Second Circuit vacated his 2014 conviction on all securities fraud charges. Sentencing is set for April 21 (U.S. v. Litvak, January 27, 2017, Hall, J.).

The 2013 indictment alleged that Litvak made misrepresentations to buyers and sellers of RMBS in order to reap profits for his firm. These alleged misrepresentations included Jefferies’ transaction costs and the prices at which it negotiated to resell RMBS. The government also alleged that Litvak told purchasing counterparties that Jefferies was functioning as an intermediary between the purchaser and an unnamed third-party seller, when in fact Jefferies was the seller.

Litvak’s original jury convicted him on every securities fraud count and multiple counts of TARP fraud and making false statements to the government. The Second Circuit reversed the convictions on the latter counts, finding the evidence insufficient to find the misstatements were material to the government. The appeals court also vacated the securities fraud convictions and remanded for a new trial due to an error by the district court.

Each of the securities fraud counts corresponds to Litvak’s purchase or sale of a single bond. Litvak argued that the alleged misrepresentations did not go to "the heart of the bargain" between him and his counterparties. There was no dispute, he contended, that the counterparties in his sales received the bonds they agreed to purchase at the prices they agreed to pay, or that the counterparty in the single purchase transaction sold the bond at the price it agreed to. The government thus failed to demonstrate manipulation or deception, materiality, or willful intent to defraud.

Specific to the count on which he was convicted, relating to the sale of a bond to Invesco in mid-2010, Litvak argued that there was insufficient evidence that Invesco’s investment decision was influenced by the alleged misstatements. He also argued that the government failed to prove that the statements at issue could have been expected to cause a reasonable investor to act (or not act) on that transaction.

The case is No. 3:13-CR-19.

Attorneys: Jonathan N. Francis, U.S. Attorney's Office, for the United States. Adam D. Harber (Williams & Connolly LLP) for Jesse C. Litvak.

Companies: Jefferies & Co.

MainStory: TopStory BrokerDealers Enforcement FraudManipulation ConnecticutNews

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