The Securities and Exchange Commission recently charged a former executive at New York-based broker-dealer Jefferies & Co. with defrauding investors while selling mortgage-backed securities in the wake of the financial crisis so he could generate additional revenue for his firm.
According to the SEC's complaint filed in federal court in Connecticut, Jesse Litvak arranged trades for customers as part of his job as a managing director on the mortgage-backed securities desk at Jefferies. Litvak would buy a mortgage-backed security from one customer and sell it to another customer, but on many occasions he lied about the price at which his firm had bought the mortgage-backed securities so he could re-sell it to the other customer at a higher price and keep more money for the firm. On other occasions, Litvak misled purchasers by creating a fictional seller to purport that he was arranging a mortgage-backed securities trade between customers when in reality he was just selling mortgage-backed securities out of his firm's inventory at a higher price. Because mortgage-backed securities are generally illiquid and difficult to price, it is particularly important for brokers to provide honest and accurate information.
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The SEC alleges that Litvak generated more than $2.7 million in additional revenue for Jefferies through his deceit. His misconduct helped him improve his own standing at the firm, as his bonuses were determined in part by the amount of revenue he generated for the firm.
The U.S. Attorney's Office for the District of Connecticut also apparently announced criminal charges against Litvak.
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According to the SEC's complaint, Litvak worked in the Stamford, Conn., office at Jefferies, and his misconduct lasted from 2009 to 2011. 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, and Section 17(a) of the Securities Act of 1933.