Former broker charged with defrauding investors

Stephanie Ostrowski Jan. 30, 2013, 12:44pm

WASHINGTON (Legal Newsline) - A former executive of the New York-based broker-dealer Jefferies & Co. has been charged with defrauding investors while selling mortgage-backed securities to generate revenue for his firm.

The Securities and Exchange Commission found Jesse Litvak arranged trades for customers in his role as a managing director on the mortgage-backed securities desk at Jefferies. On several occasions Litvak would buy a MBS from one customer and sell it to another by lying about their purchase price in order to see it for higher and keep money for the firm.

Litvak also would mislead purchasers by creating a fictional seller to give the image he was arranging a MBS trade between customers when he was actually just selling MBS out of his firm's inventory at a higher price.

MBS's are generally liquid and are difficult to price which makes it important for brokers to provide honest and accurate information.

Allegedly Litvak generated more than $2.7 million in supplemental revenue for Jefferies from 2009 to 2011. As a result his standing in the firm improved and he received bonus payouts to compensate the amount of revenue he generated for the firm, according to the SEC.

"Brokers must always tell their customers the truth, particularly in complex securities transactions in which it is difficult for investors to determine market prices on their own," said George Canellos, Deputy Director of the SEC's Division of Enforcement. "Litvak repeatedly lied to his customers and invented facts to bring additional profits into his firm and ultimately his own pocket at their expense."

Litvak is charged 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, and Section 17(a) of the Securities Act of 1933, according to the SEC's complaint.

The investigation is continuing.

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