A New Haven federal grand jury has accused former Jefferies RMBS trader, Jesse Litvak with engaging in a scheme to defraud customers on residential mortgage-backed securities (RMBS) trades.
The 16-count indictment against Litvak charges him with securities fraud, Troubled Asset Relief Program (TARP) fraud and making false statements to the federal government. His victims included numerous investment funds, including six funds that the Department of Treasury established in 2009, as part of the federal government’s response to the financial crisis. He allegedly defrauded the funds and multiple private investment funds of a total of more than $2 million.
Litvak is charged with trying to profit from TARP. He is accused of misrepresenting the RMBS seller’s asking price to the buyer, or misrepresented the buyer’s price to the seller, keeping the difference between the price paid by the buyer and the price paid to the seller for Jefferies.
He is also charged with misleading investors to believe that bonds held in Jefferies’ inventory were being offered for sale by a fictitious third-party seller invented by Litvak, which allowed Litvak to charge the buyer an extra commission that Jefferies was not entitled to.
Litvak was hired by Jefferies in April 2008 and was fired on Dec. 21, 2011, according to the indictment. He was arrested at his home yesterday by Special Inspector General for the Troubled Asset Relief Program (SIGTARP) agents. The 11 counts of securities fraud carry a maximum term of imprisonment of 20 years on each count; one count of TARP fraud carries a maximum term of imprisonment of 10 years, and four counts of making false statements to the federal government, which carry a maximum term of imprisonment of five years on each count.
The prosecution has been brought in coordination with the RMBS Working Group, a joint federal and state initiative created last year to investigate those responsible for misconduct contributing to the financial crisis. However, a securities litigation lawyer that spoke to ASR about the case said that he did not sense that securities fraud related to defrauding the government via TARP, as is alleged in the Litvak case, would be a “big issue” for most U.S. Attorneys General.