Ex-Jefferies Trader Litvak Hit With 2-Year Sentence, $2 Million Fine in RMBS Scam

NEW HAVEN, CT – Jesse C. Litvak, 42, of Boca Raton, Florida, learned his fate today: 24 months in federal prison, followed by three years of supervised release, and a hefty $2 million fine. The former Jefferies & Co. trader was convicted of securities fraud for a scheme to manipulate the price of residential mortgage-backed securities (RMBS), enriching his firm and himself at the expense of investors.

U.S. Attorney for the District of Connecticut, Deirdre M. Daly, didn’t mince words: “This sentence sends an unequivocal message that fraud in the residential mortgage backed securities trading market will be met with serious punishment.” Daly detailed how Litvak’s “repeated and brazen lies” generated over $6 million in unearned profits for Jefferies. “Litvak lied to investors to cheat them and make more money for himself,” she stated. The prosecution, a “demanding and lengthy” process, involved federal prosecutors alongside agents from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the Federal Bureau of Investigation (FBI).

The fraud centered around the Legacy Securities Public-Private Investment Program (PPIP), a post-2008 financial crisis initiative funded by billions in Troubled Asset Relief Program (TARP) bailout money. The program aimed to jumpstart trading in troubled securities, including RMBS. Litvak, a senior trader and managing director at Jefferies’ Stamford, Conn., trading floor, exploited a key advantage inherent in his position. As a broker-dealer, he alone possessed knowledge of both the seller’s and buyer’s prices. The jury found Litvak deliberately misrepresented the price Jefferies paid for RMBS bonds to PPIP fund victims, inflating profits.

Christy Goldsmith Romero, Special Inspector General for TARP, highlighted the particularly galling aspect of the scheme: “Today former Jefferies trader Jesse Litvak was sentenced to federal prison for lying to customers about the prices of residential mortgage backed securities to criminally enrich his firm’s profit and his bonus based on the profit.” Romero emphasized that one victim was a fund trading with taxpayer dollars, part of the TARP program designed to stabilize the financial system. Despite already earning over $15 million in four years, Litvak was driven by “greed to lie in 76 trades with 35 victims.”

FBI Special Agent in Charge Patricia M. Ferrick succinctly stated the outcome: “The prison term imposed today serves as another example that justice prevails over greed, deceit and criminal behavior.” Litvak had been released on bond since his arrest on January 28, 2013, but that freedom ended today. This sentencing follows a previous conviction on March 7, 2014, where Litvak was found guilty of 10 counts of securities fraud, one count of TARP fraud, and three counts of making false statements to the government.

Romero noted that Litvak’s arrest spurred changes in broker-dealer practices aimed at preventing similar fraud, but the case underscores the ongoing need for vigilance in the RMBS market. U.S. Attorney Daly affirmed that criminal investigations into fraudulent RMBS trading activities “remain active and ongoing,” signaling that others involved in similar schemes may soon face justice. The prosecution team included Jonathan Francis, Heather Cherry, and William Nardini.