NEW YORK (AP) — A federal appeals court ordered a new trial Tuesday for a former securities trader in Connecticut who was sentenced to two years in prison for allegedly defrauding the government bailout program.
The 2nd U.S. Circuit Court of Appeals in Manhattan reversed Jesse Litvak's conviction on charges he defrauded the United States by making false statements, and it vacated his conviction on securities fraud charges and ordered a new trial on those counts.
U.S. Attorney Deirdre M. Daly, based in New Haven, Connecticut, said in a statement that the government would proceed to retry Litvak on securities fraud charges.
"We are gratified that the panel unanimously upheld the government's securities fraud theory and found that the jury was justified in concluding that Mr. Litvak's misstatements were material to investors," she said.
The appeals court had allowed Litvak to remain free pending appeal because he raised substantial questions of law.
Litvak, 41, of New York City, was a registered broker-dealer and managing director at Jefferies & Co. Inc. who worked on the company's trading floor in Stamford, Connecticut. He was fired in 2011.
During oral arguments in May, a three-judge appeals panel had expressed doubts about the fairness of Litvak's trial.
In a decision written by Circuit Judge Chester J. Straub, the 2nd Circuit reversed his conviction on charges that he defrauded the United States, finding that any misstatements he made were not material to the Department of Treasury.
It said it was ordering a new trial on securities fraud counts because the trial judge blocked a defense witness from fully describing how investment managers operate, including the fact that bond traders such as Litvak were generally considered by their negotiating counterparts to be biased and often misleading.
The federal government had promoted the case as the first conviction to result from an abuse of the Troubled Asset Relief Program, which used bailout funds after the 2008 financial meltdown to restart trading markets for mortgage-backed securities.
At a 2014 trial, prosecutors said Litvak duped clients into paying artificially increased prices or accepting artificially decreased prices for bonds they were buying or selling, collecting $6.3 million in fraudulent profits for his company.
Litvak argued though his lawyers that he was singled out by prosecutors for typical Wall Street sales techniques used to deal with sophisticated financial counterparts.
Litvak's attorney, Kannon K. Shanmugam, said he was "very pleased" with the appeals ruling.
This story has been corrected to show that the defense attorney is a man, not a woman.