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Senior RMBS Trader Convicted of Fraud

The office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) announced that Jesse Litvak, a registered broker-dealer and former managing director at New York investment bank Jefferies & Co., Inc. (Jefferies), was sentenced today to 24 months in federal prison and ordered to pay a $1.75 million dollar fine in connection to his conviction for defrauding consumers trading in residential mortgage backed securities.

“For nearly three years, Jesse Litvak lied over 70 times to numerous Jefferies’ customers, cheating them and stealing their investors’ money,” stated U.S. Attorney Deirdre M. Daly. “While Litvak was being paid millions as a trader and managing director, he defrauded dozens of victims resulting in over six million dollars in loss to investors. The victim investors included pension funds for teachers, firefighters, police officers, and other state or municipal employees, as well as taxpayer-provided bailout funds that helped our nation to recover from the 2008 financial meltdown.”

Litvak was found guilty on 10 counts of securities fraud and one count of TARP fraud in March.

According to the evidence presented at trial Litvek spent more than two and a half years engaged in a scheme to defraud investors. He relied on two different forms of misrepresentation to accomplish his goals.

First, as a broker-dealer, only Litvak was aware of the selling and asking prices of the bond he was dealing in. He usd that information to misrepresent the asking and selling price to the buyer and seller, pocketing the difference between the two prices that he reportrd.

Second, Litvak took bonds held in Jefferies’ inventory and sold them to RMBS buyers only after inventing a fictitious third-party seller. The fake seller allowed Litvak to charge the buyer an extra commission for Jefferies that the firm was not entitled to because it was trading bonds already inside its inventory.

“This sentence serves as a warning bell to those who risk engaging in such corrupt practices. We hope that this prosecution will act as a forceful disincentive to market participants tempted to commit securities fraud.”

About Author: Derek Templeton

Derek Templeton is an attorney based in Dallas, Texas. He practices in the areas of real estate, financial services, and general corporate transactional law. His experience includes time as an Attorney Adviser for the U.S. Small Business Administration and as General Counsel for a nonprofit organization in Dallas. A self-avowed "policy junkie," he has a keen interest in the effect that evolving federal policy has on the mortgage, default servicing, and greater housing industries.
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