Ex-trader convicted in Connecticut of defrauding federal government's bailout program

NEW HAVEN, Conn. – A former Wall Street investment banker was found guilty Friday of defrauding investment funds established as part of the federal government’s response to the 2008 financial crisis.

A jury in New Haven convicted Jesse Litvak of securities fraud, Troubled Asset Relief Program fraud and making false statements to the federal government, authorities said. Prosecutors say he defrauded private investment funds and funds established by the U.S. Treasury with government bailout money. More than $2 million was illegally siphoned off, the government said.

Litvak was the first person convicted of a crime related to a program that used bailout funds in the financial meltdown to restart trading markets for mortgage-backed securities.

“Today’s verdict shows plainly and powerfully that Wall Street professionals are not above the law,” said U.S. Attorney Deirdre Daly. “A lie is a lie, and fraud is fraud. The jury rightly rejected Mr. Litvak’s shameful claim that he did nothing wrong because many on Wall Street engage in the same conduct.”

Litvak was found guilty of 10 counts of securities fraud, a charge that carries up to 20 years in prison on each count, one count of TARP fraud, which carries up to 10 years, and three counts of making false statements to the federal government, a charge that carries up to five years on each count.

He is scheduled to be sentenced May 30.

“Today’s verdict was swift and just, and serves as a stern warning to those who defraud the government for their own greed and avarice,” said FBI Special Agent in Charge Patricia Ferrick. “TARP was designed to aid in the recovery from one of the worst recessions in U.S. history. Mr. Litvak orchestrated a scheme of deceit and prevarication to manipulate the program to the detriment of investors and the markets.”

Litvak’s attorney, Patrick Smith, denied the allegations, telling the jury his client sold bonds at great prices to sophisticated buyers. He said Litvak engaged in typical sales tactics and followed company rules. He said the government couldn’t prove any losses.

A message left with Smith on Friday was not immediately returned.

Litvak, 39, of New York City, was a registered broker-dealer and managing director at Jefferies & Co. Inc. who worked on the company’s trading floor in Stamford. Litvak was terminated from the company in 2011.

Prosecutors said Litvak misrepresented sellers’ and buyers’ asking prices and, on behalf of Jefferies, pocketed the difference in the price paid by the buyer and the price paid to the seller. Litvak also sold bonds after inventing a fictitious third-party seller, allowing him to charge the buyer an extra commission that Jefferies was not entitled to because it was selling bonds it held in its own inventory, authorities said.

Jefferies disclosed in a regulatory filing in January that it agreed to pay $25 million to settle federal criminal and civil investigations related to mortgage-backed securities. The company noted that it terminated a trader in 2011 who was then indicted in January 2013.