RPT-UPDATE 2-Former Jefferies trader Litvak’s conviction overturned

9 Dec 2015 | Author: | No comments yet »

Conviction of Former Jefferies Trader Is Overturned.

NEW YORK (AP) — A federal appeals court ordered a new trial Tuesday for a former securities trader in Connecticut who was sentenced to two years in prison for allegedly defrauding the government bailout program. A former Jefferies & Co. managing director accused of lying to customers about bond prices had his conviction overturned, setting back government efforts to hold individuals accountable for alleged wrongdoing on Wall Street. The same court has smacked prosecutors for stretching fuzzy rules to nail insider traders and former Goldman Sachs computer programmer Sergey Aleynikov. The United States Court of Appeals for the Second Circuit said in an 84-page decision on Tuesday that there was a lack of evidence that misstatements made by Mr. Litvak’s conviction on charges of fraud against the U.S. and making false statements, saying the evidence prosecutors offered at trial “provided an insufficient basis for the jury to find that the defendant’s misstatements were material to the government.” The judicial panel also vacated Mr.

Litvak exaggerated how much sellers wanted for their mortgage-backed securities and understated what buyers would pay, thereby padding his compensation and Jefferies’ fees. Daly, based in New Haven, Connecticut, said in a statement that the government would proceed to retry Litvak on securities fraud charges. “We are gratified that the panel unanimously upheld the government’s securities fraud theory and found that the jury was justified in concluding that Mr. A jury last year disagreed and, since the federal government backed some of the securities, he was hit with a two-year prison sentence and an almost $2 million fine in part for defrauding Uncle Sam. In it, the appeals court faulted the judge for excluding some defense evidence, saying the accused must be allowed to show that his actions were in keeping with how Wall Street does business. While the ruling is a blow to the government its full impact isn’t immediately clear, and the Connecticut U.S. attorney’s office immediately said it had bolstered its legal theory and that it would proceed with a retrial of Mr.

District Judge Janet Hall’s decision to exclude a business school professor’s testimony regarding the work of investment managers was enough alone to warrant a re-trial. That puts the industry in the uncomfortable spot: To beat government accusations that bond traders are cheating investors, defense attorneys may have little choice but to tell juries the market’s sophisticated participants understand that trading securities is a lot like stepping onto a used-car lot. Bond prices are not always clear, and brokers who facilitate trading between parties make money off differences in the prices when they are bought and sold. Litvak’s team compared their client to used-car salesman who isn’t expected to be honest about what he paid for a car: If a sophisticated bond-buyer agrees the price is fair, they argued, it doesn’t matter what the dealer originally paid. Litvak’s appeal had threatened to cripple a wider Wall Street probe into whether banks cheated clients in the years following the financial crisis by deliberately mispricing a type of mortgage bond that was central to the economic turmoil.

At a 2014 trial, prosecutors said Litvak duped clients into paying artificially increased prices or accepting artificially decreased prices for bonds they were buying or selling, collecting $6.3 million in fraudulent profits for his company. Likewise, Aleynikov was facing a federal prison term for absconding with Goldman’s high-frequency trading code – until the court explained in 2012 that his behavior wasn’t a federal crime. Litvak had raised “a substantial question of law or fact likely to result in” a reversal. “We’re very pleased with the decision this morning in Jesse’s case,” Kannon K. Prosecutors and the SEC have prepared charges against individuals at other banks on similar charges, according to the people familiar with the probe, but were awaiting the outcome of Mr. Litvak argued though his lawyers that he was singled out by prosecutors for typical Wall Street sales techniques used to deal with sophisticated financial counterparts.

Litvak in 2013 of telling customers incorrect information about the price of certain residential mortgage-backed bonds and essentially pocketing the difference. Litvak, who worked at the Stamford, Conn., office of brokerage firm Jefferies between April 2008 and December 2011, swindled customers out of $2 million. The Treasury Department oversaw a program that invested in partnerships with private investors to purchase troubled assets, including mortgage-bond deals. Litvak didn’t dispute that he made misstatements, arguing at trial that they weren’t material and he didn’t think the other parties in the transactions would be harmed because he was selling the bonds at “fully disclosed and agreed upon fair prices” that stayed below Jefferies’ threshold for 4 percent profit.

Former SEC Deputy Director George Canellos said after Litvak’s January 2013 arrest that his tactics were “unfit for a used-car lot.” The case is U.S. v. Judge Barrington Parker said during arguments in May that all participants in the bond market expect some exaggeration about pricing. “We’re dealing here with big boys,” Judge Parker said at the time. “I don’t see what the limiting principle is in the government’s position that would not criminalize the back and forth in how the market operates.”

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