The SEC and the U.S. Attorney for the District of
Connecticut filed, respectively, civil and criminal fraud charges against a
former account executive at Jefferies & Co. arising out of the financial
crisis. The charges center on the sale of mortgage backed securities or MBS to
funds, including six connected with the Legacy Securities Public-Private
Investment Program or PPIP. That fund was established by the U.S. government to
help support the MBS market during the market crisis. SEC v. Litvak, Civil
Action No. 3:13-cv-00132 (D. Conn. Filed Jan. 28, 2013); U.S. v. Litvak (D.
Conn. Jan. 25, 2013).
Defendant Jesse Litvak was associated with Jefferies from
2008 through 20011. He was a managing director and a trader in the firm's MBS
group, resident in the Stamford, Connecticut office. At the time he began with
the firm he was an experienced MBS trader. His compensation at Jeffries
depended in part on sales.
The MBS sold by Mr. Litvak were generally illiquid. The
markets were opaque. Purchasers were aware that a charge for their compensation
was added to the purchase price of the security by Jefferies as either part of
the price or an add-on. At the same time, the lack of transparency in the
market meant that there was no way for a purchaser to determine the accuracy of
representations made to them about the purchase prices which were the predicate
for the broker transaction charges.
Mr. Litvak is alleged to have overcharged customers by
about $2.6 million in 25 transactions between 2009 and 2011. Customers were
overcharged in two primary ways, according to the court documents. In some
instances Mr. Litvak misrepresented the purchase price paid by his firm for the
security. This would increase the commission or spread to Mr. Litvak and his
firm. In other instances he misrepresented the nature of the transaction,
falsely telling the customer that the security was being acquired in a
transaction from another customer when in fact it was being sold out of
inventory. Again the purchase price and thus the compensation to Jefferies was
Many of the transactions were done through electronic
communications such as instant messages, emails and online chats. Several of
these are quoted at length in the Commission's complaint. That complaint
alleges violations of Securities Act Section 17(a) and Exchange Act Section
The parallel criminal indictment contains eleven counts
of securities fraud, one count of TARP fraud, and four counts of making false
statements. Both cases are pending.
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