U.S. charges ex-Jefferies exec with mortgage debt fraud

Mon Jan 28, 2013 5:23pm EST
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By Jonathan Stempel

(Reuters) - A former Jefferies Group Inc JEF.N managing director has been charged with defrauding a federal bank bailout program and investors in mortgage securities by falsifying prices and the identities of sellers, in a bid to make more money for his employer, U.S. authorities said on Monday.

The criminal case against Jesse Litvak, a former senior trader on Jefferies' trading floor in Stamford, Connecticut, is the first under a 2009 law banning "major fraud" against the United States through the Troubled Asset Relief Program, TARP Special Inspector General Christy Romero said on a conference call.

Investigators said Litvak's scheme generated more than $2.7 million of revenue for Jefferies and defrauded a variety of public and private funds. They said these funds included participants in the Public-Private Investment Program designed to revive the moribund market for mortgage-backed securities.

Among the defrauded investors were funds set up by AllianceBernstein Holding LP (AB.N: Quote), BlackRock Inc (BLK.N: Quote), George Soros' Soros Fund Management LLC, Daniel Loeb's Third Point LLC, and Wellington Management Co, the government said.

U.S. Attorney David Fein in Connecticut, who announced the criminal charges, described Litvak's conduct as "reprehensible," and said the investigation is ongoing.

Authorities said Litvak, 38, was arrested without incident at his New York home on Monday, and later pleaded not guilty to 16 criminal charges before U.S. Magistrate Judge Holly Fitzsimmons in Bridgeport, Connecticut.

Bail was set at $1 million, and Litvak's case was assigned to U.S. District Judge Janet Hall in New Haven. A tentative trial date was set for May 6. The U.S. Securities and Exchange Commission filed related civil charges.

Patrick Smith, a partner at DLA Piper representing Litvak, said his client looks forward to clearing his name at trial.   Continued...