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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22602 / January 29, 2013

Securities and Exchange Commission v. Jesse C. Litvak, Civil Action No. 3:13-CV-00132 (District of Connecticut, Complaint filed January 28, 2013)

SEC CHARGES FORMER JEFFERIES EXECUTIVE WITH DEFRAUDING INVESTORS IN MORTGAGE-BACKED SECURITIES

The Securities and Exchange Commission today charged a former managing director of Jefferies & Co., Inc. (Jefferies), a New York-based broker-dealer, with making misrepresentations and engaging in misleading conduct while he sold mortgage-backed securities (MBS) in the wake of the financial crisis.

The SEC alleges that Jesse Litvak, a senior trader on Jefferies' MBS Desk who worked at Jefferies' office in Stamford, Connecticut, bought and sold MBS from and to his customers. On numerous occasions from 2009 to 2011, Litvak lied to, or otherwise misled, those customers about the price at which Jefferies had purchased the MBS before selling it to another customer and the amount of his firm's compensation for arranging the trades. On some occasions, Litvak also misled his customer into believing that he was arranging a MBS trade between customers, when Litvak really was selling the MBS out of Jefferies' inventory. Litvak also misled customers about how much money they were paying in compensation to Jefferies. The customers included investment funds established by the United States government in the wake of the financial crisis to help support the market for MBS as well as other investment funds, including hedge funds.

According to the SEC's complaint filed in U.S. District Court for the District of Connecticut, Litvak engaged in misconduct on over 25 trades. When Litvak offered his customers MBS, he lied to them about how much Jefferies had paid (or was paying) for the securities. When negotiating the sale of MBS, Litvak often represented to a customer that Jefferies had paid a particular price for the security, and therefore could sell it to the customer at a slightly higher price. In order to negotiate a higher sale price to his customers, Litvak misled them into believing that Jefferies had paid a higher price for the MBS than it actually had. On some occasions, Litvak also pretended to be actively negotiating with an outside party to buy a security that he would then re-sell to his customer. But none of these negotiations were taking place; instead, Litvak fabricated the existence of the seller and every detail about active negotiations with it. In fact, as Litvak knew, Jefferies had purchased these bonds days before and already held them in its inventory.

The SEC's complaint charges Litvak with violating the antifraud provisions of the federal securities laws, particularly Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining Litvak from future violations of the above provisions of the federal securities laws, ordering him to disgorge his ill-gotten gains plus prejudgment interest, and order him to pay civil penalties.

The SEC's investigation, which is continuing, has been conducted by Kerry Dakin, James Goldman, Rachel Hershfang, and Kevin Kelcourse in the Boston Regional Office. Mr. Goldman is a member of the Structured and New Products Unit. The SEC's litigation will be led by Ms. Hershfang.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2013/lr22602.htm


Modified: 1/29/2013