On July 30, 2018, federal prosecutors moved to dismiss the sole remaining charge of securities fraud against former bond trader Jesse Litvak, ending a five-year criminal case during which Litvak was twice convicted after trials on securities fraud charges and both convictions were later overturned on appeal. Although the government’s decision means there will not be a third trial, the government emphasized in its motion to dismiss the charges that the United States Court of Appeals for the Second Circuit had not accepted Litvak’s argument that the case was legally invalid. See
Government’s Motion to Dismiss Count Four, United States v. Litvak
, No. 3:13-cr-00019 (D. Conn. July 30, 2018).
By way of background, at his first trial in 2014, Litvak was found guilty of fifteen fraud-related counts, principally based on Litvak’s alleged misrepresentations to his customers concerning the prices at which he originally purchased certain residential mortgage-backed securities (“RMBS”). The government alleged that Litvak’s misrepresentations enabled him to sell the RMBS at more favorable prices than he otherwise would have, absent the misrepresentations. On appeal, the Second Circuit vacated his conviction on the grounds that there was insufficient evidence to convict him of certain counts, and that the district court had erred in a number of evidentiary rulings, which tainted the remaining counts of conviction.
Litvak was tried again in 2017 on ten counts of securities fraud. The jury convicted him of only one of the ten counts. Despite an almost across-the-board acquittal, Litvak received the same term of imprisonment (two years) that the district court had imposed after his initial conviction, and a higher fine than Litvak had received after his first trial. As we previously reported, on May 3, 2018, the Second Circuit again reversed Litvak’s sole count of conviction, concluding that the district court had erred in admitting irrelevant testimony. See
Shearman & Sterling LLP, Second Circuit Once Again Vacates Bond Trader Jesse Litvak’s Conviction For Securities Fraud
, Need-to-Know Litigation Weekly (May 3, 2018) https://www.lit-wc.shearman.com/second-circuit-once-again-vacates-bond-trader-jesse
; Shearman & Sterling LLP, Former Bond Trader Jesse Litvak Sentenced To Two Years’ Imprisonment After High-Profile Re-Trial In Securities Fraud Case
Need-to-Know Litigation Weekly (May 2, 2017); https://www.lit-wc.shearman.com/former-bond-trader-jesse-litvak-sentenced-to-two-
The government’s prosecution of Litvak was one in a series of prosecutions of bond traders for allegedly deceptive sales tactics, which have proven to be difficult cases for prosecutors. In May 2018, for example, a jury acquitted former Cantor Fitzgerald trader David Demos of securities fraud relating to bond transactions he made in 2012. United States v. Demos
, No. 16-cr-000220 (D. Conn. May 3, 2018). In a June 2017 trial against three former traders at Nomura Securities International Inc., a jury found one defendant guilty, hung on a single count against another, and acquitted the third. United States v. Shapiro, et al
., No. 3:15-cr-00155 (D. Conn. June 5, 2018). The court granted the one convicted defendant a new trial in June 2018. United States v. Shapiro, et al
., No. 3:15-cr-00155 (D. Conn. June 5, 2018).
When viewed against this backdrop, the government’s decision to dismiss charges against Litvak underscores the challenges that the government has faced in proving materiality of alleged misstatements about pricing and profits made in transactions between sophisticated traders. The government made clear in its motion to dismiss that it believed the Litvak case was grounded in a sound legal theory. And while that very well may be the case, the dismissal certainly is an acknowledgment by the government that these cases are difficult and that prosecutors will be less aggressive in bringing such charges.