In the financial services industry, rogue trading individuals are rarely convicted.
That fact is of little solace to former mortgage bond trader Jesse Litvak right now.
Christy Romero, Special Inspector General for the Troubled Asset Relief Program, convicted Litvak, a registered broker-dealer and former managing director at New York investment bank Jefferies & Co., of multiple offenses involving a scheme to defraud customers trading in residential mortgage-backed securities.
The jury convicted Litvak on all counts, including ten counts of securities fraud, one count of defrauding the Troubled Asset Relief Program (TARP), and four counts of making false statements within the jurisdiction of the United States Government.
The conviction came with the help of Deirdre M. Daly, United States Attorney for the District of Connecticut and Patricia M. Ferrick, Special Agent in Charge of the New Haven, Conn., Division of the Federal Bureau of Investigation.
“This afternoon, Jesse Litvak, a former senior trader at New York investment bank Jefferies & Co., was convicted of lying through his teeth to defraud American taxpayers out of their hard-earned TARP investments,” said Romero. “The defendant was the first person SIGTARP arrested for a crime related to the TARP bailout program known as PPIP, and he is now the first person convicted of a crime related to that program."
"Trading in mortgage securities can be a complicated business, but what the defendant did was simple – he lied to, defrauded, and illegally overcharged customers out of pure greed to benefit Jefferies and himself. Some of those customers were taxpayers who funded the TARP bailout," Romero added.
According to the evidence introduced during the three-week trial, in response to the 2008 financial collapse, the U.S. Department of Treasury introduced the Legacy Securities Public-Private Investment Program (PPIP) and used more than $22 billion of bailout money from TARP to restart the trading markets for many troubled securities, including certain kinds of RMBS. The program created nine PPIP funds, and more than 100 firms applied to manage the funds. TARP infused between $1.4 billion and $3.7 billion of bailout money into each of the PPIP funds that was to be invested alongside private capital.
Litvak, 39, of New York, N.Y., was a senior trader and managing director at Jefferies, a global securities and investment banking firm headquartered in New York. Jefferies also had a trading floor in Stamford, Conn., where Litvak and other members of its Mortgage and Asset-Backed Securities trading group worked.
Editor's note: an earlier alert incorrectly referenced a "rouge trader." We apologize for the misspelling and any confusion it may have caused.