It is a standard rule of evidence that charges against one person cannot be used to prove someone else committed a crime by engaging in the same type of conduct, especially if the cases are unrelated. But what happens when the government wants to prove criminal intent by using a case that reverberated across Wall Street, so that traders at other firms should be aware that misrepresentations to customers can be fraudulent? That question has been raised in the prosecution of three residential mortgage-backed securities traders from Nomura Securities International, Ross B. Shapiro, Michael A. Gramins and Tyler G. Peters, who are charged with conspiracy and securities fraud for allegedly misleading buyers about the value of the bonds involved in transactions.
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On Monday, following two reversals of convictions, the U. And twice the Second Circuit overturned the convictions on narrow and technical grounds. But the somewhat torturous history of the Litvak case does highlight the difficulty for the Government in establishing the materiality of alleged misstatements made to sophisticated securities professionals who undertake their own analysis of trades.
Indeed, in many of these RMBS cases, the Government faced an uphill battle from the start, evidenced by its inability to secure convictions in many of them. The first jury agreed with the Government, convicting Litvak of all counts. The next time around, a second jury—after being educated on such valuation procedures—convicted Litvak on a single count of securities fraud.
But on May 3, , the Second Circuit again vacated the conviction. Thus, the dismissal of its charges against Litvak should not be interpreted as an indication that the Government will never consider similar charges going forward, nor that it will drop all pending charges involving theories and allegations similar to those in Litvak. However, the case—and the decision not to press forward with a third trial—highlights the challenges for the Government in proving materiality of alleged misstatements about pricing and profits made in arms-length transactions between sophisticated traders.
Such testing may, in fact, begin in the near future. These cases have been met with headwinds. Following a trial in May of last year, a jury convicted Michael Gramins on one count of conspiracy, but acquitted Tyler Peters and failed to reach a verdict on a conspiracy count against Ross Shapiro and two substantive fraud counts against Gramins.
Litvak , 13 cr. Litvak , F. Vilar , F. Shapiro and Gramins , 15 cr.
Two Strikes and You’re Out: The Litvak Saga Comes to an End
On Monday, following two reversals of convictions, the U. And twice the Second Circuit overturned the convictions on narrow and technical grounds. But the somewhat torturous history of the Litvak case does highlight the difficulty for the Government in establishing the materiality of alleged misstatements made to sophisticated securities professionals who undertake their own analysis of trades. Indeed, in many of these RMBS cases, the Government faced an uphill battle from the start, evidenced by its inability to secure convictions in many of them. The first jury agreed with the Government, convicting Litvak of all counts.
David B. This prosecution has been brought in coordination with the RMBS Working Group, and relates to alleged fraud committed against the government in response to the financial crisis through the pooling and sale of RMBS. The RMBS Working Group is a joint federal and state initiative created last year to investigate those responsible for misconduct contributing to the financial crisis. RMBS were pools of mortgages deposited into trusts and then sold as securities to investors who were to receive a stream of income from the mortgages packaged in the RMBS. Attorney Fein. The U.
Jesse Litvak, A Symbol of the Government Crackdown on Wall Street, Goes on Trial Again
Jesse Litvak is a former managing director and mortgage-backed securities trader who worked for the brokerage firm Jefferies. Litvak, who was arrested in January ,  was originally found guilty of lying to clients about mortgage-backed securities in a March trial, in which he received a two-year prison sentence and 1. In January a jury found Litvak guilty of just one of the previous ten charges. On April 26, a federal judge in Connecticut sentenced Litvak to two years in prison and a two million dollar fine. On May 3, the Second Circuit Court of Appeals vacated the conviction for a second time, saying the district court "materially erred". Litvak's lawyers argued at trial that the governments case was overly-aggressive in sentencing guidelines in order to "compensate for its mostly unsuccessful prosecution of Mr. Litvak," and that in the past, federal regulators had handled similar bond-trading violations with civil penalties and fines and not criminal prosecutions.
The Impact of Compliance –Another Reversal For a Jefferies Trader