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SEC Goes After|Stamford Stockbroker

     HARTFORD (CN) – The SEC on Monday charged a stockbroker with defrauding investors by selling them mortgage-backed securities during the financial crisis, to make more than $2.7 million for his firm, and goose his own bonus.
     The SEC sued Jesse C. Litvak, 38, of New York City. He was a managing director and trader for Jefferies & Co., working out of its office in Stamford, Conn. Jefferies is not a party to this federal complaint.
     The U.S. Attorney’s Office announced parallel criminal charges against Litvak, the SEC said.
     “This case involves misrepresentations and misleading conduct by Litvak while he bought and sold mortgage-backed securities (‘MBS’) as a senior trader at Jefferies & Company, Inc. (‘Jefferies’), a broker-dealer,” the complaint states. “Part of Litvak’s job involved arranging trades between his customers, meaning that he would buy a MBS from one customer and then sell it to another customer. On numerous occasions from 2009 to 2011, Litvak lied to, or otherwise misled, customers about the price at which his firm had bought the MBS and the amount of his firm’s compensation for arranging the trades. On some occasions, Litvak also misled the customer into believing that he was arranging a MBS trade between customers, when Litvak really was selling the MBS out of Jefferies’ inventory. Litvak’s misconduct misled customers about the market price for the MBS, and, thus, about the transaction they were agreeing to. Litvak also misled customers about whether they were getting the best price for their MBS trades and how much money they were paying in compensation. MBS are generally illiquid and discovering a market price for them is difficult. Participants trading in the MBS market must rely on informal sources, including their broker, for this information.
     “Jefferies’ customers owed fiduciary duties to their clients. Jefferies’ customers included funds which were established by the United States government under a program designed to help strengthen the markets for MBS during the financial crisis. Had Jefferies’ customers been aware that they could have paid less for the MBS they purchased, they would have made an effort to do so.
     “Litvak engaged in the misconduct to facilitate the purchase and sale of MBS and earn more revenue for Jefferies. By engaging in the misconduct, Litvak generated over $2.7 million in additional revenue for his firm. Litvak also sought to improve his own standing at Jefferies. Litvak’s bonus was determined in part by the amount of revenue he generated for the firm.”
     The SEC seeks disgorgement, penalties and an injunction.

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