“Cowboy Of Wall Street” Gets Two Years In Prison For Bond Price-Rigging After All

Remember Jesse Litvak?

He was the Jefferies MBS bond trader who was the first to get busted in January 2013 for rampant skimming off the bid and ask when trading with clients. We first profiled him over four years ago, and in that period he has repeatedly made headline news, most recently in January when Litvak was initially found guilty at a trial although on just one of 10 counts, after his first conviction was reversed on appeal. Well, moments ago Litvak made headlines again when learned his new punishment, and as Bloomberg reports he was disappointed: it two years behind bars and a $2 million fine for lying to a customer about bond prices.  His main transgression: fabricating bid/ask prices when talking to clients seeking to trade mortgage-backed bonds with him, in addition to “bending the truth or even falsifying chat transcripts in order to maximize his earnings.”

As Bloomberg writes, “Litvak’s arrest in January 2013 marked the onset of a crackdown on shady sales practices in the opaque world of securities backed by assets such as home loans. The probe has led to charges against at least seven other traders and the departure of nearly two dozen. Three former traders at Nomura Securities go on trial next week.”

These were the cowboys of Wall Street,” said Peter Henning, a law professor at Wayne State University in Detroit. “If you were a bond trader, you could almost do anything you wanted, and not anymore.”

Indeed: this is in line with what we predicted back in January 2013 when we said that “the days of rampant skimming on top of the bid/ask spread, and with them record bonuses for bond traders and salesmen, may just ended with a whimper not a bang, and all bond traders hoping to make millions by misrepresenting what the true purchase or sale prices are to buysider clients, even if completely voluntary on both sides, may want to seek employment elsewhere. They have Jesse Litvak to thank for it.”

For those unfamiliar with Litvak’s colorful history, here is a brief reminder from Bloomberg:

Litvak was initially convicted of 15 counts of securities fraud during his first trial in 2014 and ordered to spend two years in prison and pay a $1.75 million fine. An appeals court reversed the conviction and sent the case back for another trial, saying that he should have been allowed to present evidence from his own expert that misrepresentations between financial professionals were common.


After his second conviction, Litvak’s lawyers asked U.S. District Judge Janet C. Hall to sentence him to a pay a fine plus eight months of confinement at his home in Boca Raton, Florida, where his wife  has a dental practice. They said the circumstances surrounding his conviction have changed “dramatically,” given he is only facing punishment for one count instead of 15. They also argued that the government has handled similar bond-trading infractions via regulatory sanctions and fines, rather than criminal prosecutions.

“We come before your honor with different circumstances that compel a different result,” Dane Butswinkas, one of Litvak’s attorneys, told Hall on Wednesday. “The different outcome is a factor. The other resolutions of cases that are similar is a factor.”

Prosecutors disagreed, and instead demanded a harsher punishment than what Litvak received the first time, saying he showed no remorse, blamed one of his alleged victims and criticized the jury that convicted him. Federal guidelines called for a sentence of 9 to 11 years, they said. Litvak had “every advantage in life” and his career gave him “wealth beyond the dreams of most Americans,” along with a multimillion dollar apartment on Manhattan’s Upper East Side and a “luxurious” six-bedroom vacation home in New York’s Hamptons, according to prosecuters’ court filings.

On Wednesday, Judge Hall said a key witness’s testimony about Litvak’s tactics was “very compelling.” He “regularly and repeatedly” misrepresented prices, she said.

The investors were harmed because they paid more money to Jefferies and more likely more than they would have paid if Mr. Litvak hadn’t lied,” Hall said. Hall last week rejected Litvak’s request to throw out his latest conviction. He will have to look to a federal appeals court in Manhattan if he hopes to avoid prison.

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Why is a big deal being made out of this case? Simple: there are many in the same boat as Litvak. As Bloomberg concludes, The case has been closely monitored by bond traders, especially others who have been charged in the crackdown on deceptive sales tactics.

Next week jury selection is set to begin about an hour to the north, in Hartford, in the trial of three former Nomura Holdings Inc. traders. Ross Shapiro, Tyler Peters and Michael Gramins are accused of similar conduct. A former Cantor Fitzgerald & Co. mortgage-bond trader, David Demos, was indicted in December on fraud charges for allegedly lying to customers.

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As for Litvak, third time may be the charm: “while prosecutors in the Litvak case proved their case to the jury, Henning said it “wasn’t the wide ranging fraud it was first touted as” and may get another close look from a federal appeals court.”

“The government achieved one important thing with its prosecution” of Litvak, Henning said, “sending a message to financial firms to be more careful. Firms have put a much greater emphasis on compliance, even in dealing with sophisticated clients.”

What he really meant is that the message sent by the government was far simpler: break any and all laws – as Wall Street continues doing to this day, just look at Deutsche Bank – but don’t get caught.”

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