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Ex-Jefferies Director Loses Bid to Exclude Pay Evidence (1)

January 10, 2014

A former Jefferies & Co. managing director accused of fraud in trades of residential mortgage-backed securities lost a bid to stop prosecutors from presenting evidence about his compensation during trial.

Jesse Litvak had asked U.S. District Judge Janet C. Hall in New Haven, Connecticut, to preclude the government from introducing evidence about pay at his trial, which is scheduled to begin next month. Hall denied Litvak’s motion during a hearing today, while limiting prosecutors from revealing details of his compensation until they can connect it to the alleged fraud.

Litvak said in court filings that the $2 million in profit he’s accused of generating through the fraudulent trades is only a part of the profit in 2009 and 2010, and that allowing the jury to hear about his “substantial” discretionary bonuses would only “create confusion and unfair prejudice.”

Litvak handled more than 2,700 residential mortgage-backed securities during his time at Jefferies and generated about $58 million in net profit for the firm from 2009 to 2011, according to the filings.

Financial Motive

Prosecutors said evidence in the case links his compensation to his motive to commit the crimes he is alleged of committing. The government says Litvak made $17.5 million over three years at Jefferies, and about 3 percent of that amount was the proceeds of the alleged fraud.

“Although Litvak argues that the number of his allegedly unlawful transactions was ’exceedingly small’ compared to the number of his purportedly legitimate transactions, the figures above significantly understate Litvak’s financial motive,” prosecutors said.

The government said Litvak made about $656,000 for Jefferies on the sale of one bond in March 2010, $613,000 of which was attributable to his alleged fraud -- or more than 20 percent of all of his profit for that month.

Litvak, who has pleaded not guilty, was indicted in January 2013 on charges of securities fraud, fraud connected to the Troubled Asset Relief Program and making false statements to the federal government. Alleged victims include investment funds, among them six established by the U.S. Treasury Department in 2009 as part of its response to the financial crisis.

Federal Requests

Following Litvak’s arrest, U.S. banks including JPMorgan Chase & Co. (JPM:US) and UBS AG (UBSN) received federal requests for information about trades in mortgage-backed securities after the financial crisis, two people briefed on the matter said this week.

The investigation is in early stages, said the people, who asked not to be identified because the inquiries were confidential.

JPMorgan, the biggest U.S. lender by assets, disclosed the probe in an August filing, saying it received subpoenas and requests for information from the Securities and Exchange Commission, the special inspector general for the Troubled Asset Relief Program and the U.S. Attorney’s office in Connecticut.

Other Banks

The largest global banks lost billions of dollars on mortgage-backed debt during the financial crisis as U.S. home prices plunged and the market for such assets dried up. While the securities rebounded after the crisis, markets remained illiquid with wide spreads between bids from buyers and sellers. she wrote.

Barclays Plc (BARC), Citigroup Inc. (C:US), Deutsche Bank AG (DBK), Goldman Sachs Group Inc. (GS:US), Morgan Stanley (MS:US) and Royal Bank of Scotland Plc (RBS:US) are also under scrutiny in the probe, the Wall Street Journal reported earlier this week.

Litvak is charged with 11 counts of securities fraud and may face as long as 20 years in prison on each count if convicted. He’s also charged with one count of TARP fraud, which carries a maximum penalty of 10 years in prison, and four counts of making false statements to the government, each punishable by as long as five years in prison. He’s free on a $1 million bond.

The case is U.S. v. Litvak, 13-cr-00019, U.S. District Court, District of Connecticut (New Haven).

To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court at; John Dillon in federal court in New Haven, Connecticut, at

To contact the editor responsible for this story: Michael Hytha at

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