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Former Jefferies Group Trader Found Guilty of Misrepresenting Bond Prices

A jury in the U.S. District Court in New Haven, Conn., found former Jefferies Group LLC trader Jesse Litvak guilty of misrepresenting bond prices to his clients and thus violating federal securities laws. Federal prosecutors had accused Litvak of providing inflated prices of certain residential mortgage-backed bonds and then pocketing the difference.

Litvak’s case is significant in many ways. It is the first case where a person was charged with fraud related to the Public-Private Investment Program initiative under the federal TARP. The program had been started by the Treasury Department to authorize private money managers buy bonds using taxpayer’s money to alleviate the subprime mortgage crisis. Secondly, the case will also increase diligence in negotiating bonds.

The jury panel of five woman and seven men took two days of deliberation to find Litvak guilty on 15 criminal counts, including 10 counts on securities fraud. His sentence would be passed in a separate proceeding by a federal judge.

Prosecutors had alleged that Litvak, who worked at the Stamford, Conn., office of Jefferies between April 2008 and December 2011, had swindled his customers out of $2 million by providing them incorrect pricing information.



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Litvak’s defense argued that statements made by Litvak to his clients had no impact on their decision to purchase the bonds. His lawyer, Patrick Smith, argued that “Both sides do it to each other because the tactics are expected … At the end of the negotiations, everyone gets where they need to be.” He also argued that in the concerned cases private money managers were not acting on behalf of the government, but in their own capacities.

Jefferies LLC has not been charged of any wrongdoing and it had entered into a preliminary agreement early this year to pay $25 million and resolve U.S. investigations concerning Litvak.

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