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Prosecutors Dealt Dual Setbacks in Mortgage Bond Fraud Crackdown

Prosecutors Dealt Dual Setbacks in Mortgage Bond Fraud Crackdown
(Marius Scarla/Ddreamstime)

Thursday, 03 May 2018 12:07 PM

U.S. prosecutors on Thursday suffered dual setbacks in a crackdown targeting deceptive mortgage bond trading practices as a federal appeals court overturned an ex-Jefferies Group trader's conviction and a jury acquitted a former Cantor Fitzgerald employee.

The 2nd U.S. Circuit Court of Appeals in New York overturned former Jefferies Group mortgage bond trader Jesse Litvak's second criminal conviction for defrauding a customer about bond prices, saying jurors had wrongly been allowed to hear irrelevant evidence.

Shortly after the court ruled, a federal jury in Hartford, Connecticut, acquitted former Cantor Fitzgerald bond trader David Demos of charges that he defrauded investors by lying about the price of mortgage bond transactions he handled for them.

The 2nd Circuit's ruling came more than two years after the court threw out Litvak's first conviction in the case. It sent the case back to the district court in Connecticut, where prosecutors may choose to put Litvak on trial a third time.

Thomas Carson, a spokesman for the Connecticut U.S. Attorney's office, confirmed the verdict in Demos' case and said the office was reviewing the decision in Litvak's case.

Litvak's lawyer had no immediate comment. A lawyer for Demos did not respond to a request for comment.

The two men were among eight people who were criminally charged by federal prosecutors pursuing cases against traders accused of cheating customers on prices of mortgage-backed securities.

Prosecutors accused Litvak, 43, of lying to customers such as Invesco Ltd, AllianceBernstein and Soros Fund Management about bond prices from 2009 to 2011, generating $2.25 million of illegal profit for his employer and hoping to boost his own pay.

Jurors in January 2017 convicted the former Jefferies managing director on only one of the 10 counts he faced, which concerned a bond transaction with Invesco. Nonetheless, Litvak was sentenced to the same two-year term he received in 2014 after his first conviction, on 15 counts.

In vacating the conviction on Thursday, the 2nd Circuit said that Hall had improperly allowed the jury to hear testimony that an Invesco employee believed Litvak was acting on the employee's behalf.

That belief was incorrect, and therefore irrelevant, but could have confused the jury or turned it against Litvak, the court found.

Litvak had worked in the Stamford, Connecticut, office of Jefferies, a unit of Leucadia National Corp. 

© 2020 Thomson/Reuters. All rights reserved.


   
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U.S. prosecutors on Thursday suffered dual setbacks in a crackdown targeting deceptive mortgage bond trading practices as a federal appeals court overturned an ex-Jefferies Group trader's conviction and a jury acquitted a former Cantor Fitzgerald employee.
prosecutors, setbacks, mortgage, bond, fraud
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2018-07-03
Thursday, 03 May 2018 12:07 PM
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