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Former Stockbroker Charged With Defrauding Investors

The Securities and Exchange Commission has charged Jesse Litvak, formerly with Jefferies & Co., with fraud for allegedly selling mortgage-backed securities (“MBS”) at inflated prices in order to generated additional revenue for his firm.

According to Litvak’s CRD BrokerCheck report, a customer complained to the firm in November 2011 regarding pricing on certain non-agency MBS. The firm settled with the customer for $2.2 million. The BrokerCheck also reflects that Jefferies fired Litvak after it concluded that he “was not forthright with a customer regarding contra-side trade execution.”

According to the SEC’s Complaint, Litvak’s job at Jefferies involved coordinating trades between his customers i.e., Litvak would buy MBS from one client and sell it to a different client. The SEC alleges that, on many occasions between 2009 and 2011, Litvak misrepresented to customers the price the firm had paid for the MBS and the amount of compensation his firm would receive for arranging the trades. In addition, the SEC claims Litvak sometimes represented that the MBS was being purchased from another customer when the MSB was actually being sold out of Litvak’s own inventory. According to the Complaint, Litvak misled his customers into thinking that they were getting the best purchase price for the MBS when, in fact, they could have purchased the MBS for less.

The SEC alleges that Litvak’s misconduct resulted in the generation of an additional $2.7 million in revenue to the firm. The revenue generated by Litvak for the firm was factored in to determining his standing in the firm and the amount of his bonus.

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