Bond trader Jesse Litvak's ordeal ends as fraud case dropped

The five-year legal odyssey of former Jefferies Group managing director Jesse Litvak, the first person charged in a federal crackdown on questionable bond-trading tactics, came to an end as prosecutors said they don't intend to try him a third time.

Litvak's arrest in 2013 sent shock waves through Wall Street and led to the resignations and suspensions of dozens of traders. But the crackdown stalled spectacularly in May when the Second Circuit Court of Appeals vacated Litvak's conviction for a second time, just hours before a jury acquitted a former Cantor Fitzgerald bond trader accused of similar conduct.

"Dropping it at this point makes sense," said Peter J. Henning, a former federal prosecutor and a law professor at Wayne State University in Detroit. "I expect the U.S. Attorney read the tea leaves in the Second Circuit opinion that any conviction was unlikely to survive."

Jesse Litvak
Jesse Litvak. Photographer: Douglas Healey/Bloomberg

It wasn't immediately clear how the government's decision will affect the pending cases of a former Nomura Holdings Inc. trader or of two former Royal Bank of Scotland Group traders who pleaded guilty. Under an agreement with prosecutors, the two RBS traders are allowed to withdraw their pleas if Litvak is ultimately cleared.

Kannon Shanmugam, Litvak's lawyer, didn't immediately respond to a request for comment.

Litvak was twice convicted by Connecticut juries on charges that he lied to clients about mortgage-bond prices while negotiating trades. In both instances, the Manhattan-based appeals court tossed the conviction on technical legal grounds, while also finding that there was evidence to support the guilty verdicts.

On Thursday, Connecticut U.S. Attorney John H. Durham cited those rulings in asking the judge to throw out the one remaining count against Litvak. "In light of the totality of the circumstances unique to this case, the government has concluded that the interests of justice would not be served by a third trial," Durham wrote in a brief filing.

In another setback for prosecutors, a judge in June threw out the conviction of former Nomura Holdings Inc. trader Michael Gramins, who was convicted of conspiracy last year.

Another ex-Nomura trader, Ross Shapiro, was found not guilty of eight fraud counts while the jury deadlocked on a single count of conspiracy, and a third trader was cleared of all charges. Prosecutors have appealed the decision to grant Gramins a new trial.

The defendants were all accused of misrepresenting the prices their companies had paid for mortgage bonds — or how much they were able to sell them for — in order to increase their firms' commissions. The traders argued that their lies weren't material, or important enough to influence their customer’s investment decisions.

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