Tags: mortgage | traders | charges | bonds

US Said to Pursue Charges Against Other Mortgage Traders

Wednesday, 19 Nov 2014 08:05 AM

The U.S. government is building potential securities fraud cases against more Wall Street mortgage-bond traders after winning a conviction this year against a former Jefferies Group LLC trader, according to two people with knowledge of the investigations.

The Justice Department and the Securities and Exchange Commission are using the case against former Jefferies trader Jesse Litvak as a model, although no decisions have been made on timing, said the people, who asked not to be identified because the investigation is confidential.

The government has been looking into the activities of as many as 10 traders who worked at banks including JPMorgan Chase & Co., Royal Bank of Scotland Group Plc and Morgan Stanley, one of the people said.

Tom Carson, a spokesman for the U.S. Attorney’s Office in New Haven, Connecticut, which prosecuted the Litvak case, and John Nester, an SEC spokesman, declined to comment. Brian Marchiony, a spokesman for JPMorgan, Sarah Lukashok of RBS and Mark Lake of Morgan Stanley also declined to comment.

Litvak, 40, was sentenced to two years in prison after being convicted in March for defrauding investors of $2 million by misrepresenting how much sellers were asking for securities, or what customers would pay, and keeping the differences for Jefferies.

Trader Parking

The trader, whose attorneys said never made misrepresentations about “the nature or quality” of securities traded, was granted bail last month while he appeals the conviction. The U.S. Court of Appeals in Manhattan said last month that Litvak raised “substantial” questions of law and fact that are “likely to result” in a reversal of the decision.

As part of its investigation, the government is also examining a practice known as parking, where traders seek to skirt capital regulations or internal trading rules by selling bonds to accomplices with an understanding that they’ll repurchase them later, one of the people said.

The SEC won an administrative case on Nov. 13 against a former Barclays Plc trader, alleging he “temporarily placed securities” in the trading book of a counterpart at another firm “to avoid penalties that would affect his year-end bonus.” The Financial Industry Regulatory Authority, an industry watchdog, sanctioned a former Societe Generale SA mortgage-bond trader last month for similar transactions.

Contracting Market

The mortgage-bond market has contracted after investors and banks lost billions of dollars on the debt during the financial crisis as U.S. home prices plunged. While the securities rebounded in the years that followed, the market remained illiquid, with wide spreads between bids from buyers and offers from sellers.

In the Litvak case, prosecutors said victims included funds established by the U.S. Treasury Department as part of its response to the financial crisis. Among them was the Public- Private Investment Program, an initiative that used money from government bailouts to spur investments in mortgage securities after the crisis.

JPMorgan, Morgan Stanley and RBS are among firms that have put traders on leave this year after banks received inquiries from U.S. regulators, a separate group of people with knowledge of the moves said in April. None of those people said why the banks took the actions or whether they were related to the government’s investigations.


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The U.S. government is building potential securities fraud cases against more Wall Street mortgage-bond traders after winning a conviction this year against a former Jefferies Group LLC trader, according to two people with knowledge of the investigations.
mortgage, traders, charges, bonds
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2014-05-19
Wednesday, 19 Nov 2014 08:05 AM
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