Former trader charged with defrauding bailout fund

A federal grand jury in Connecticut returned a 16-count indictment charging 38-year-old Jesse C. Litvak of New York City with securities fraud, Troubled Asset Relief Program fraud and making false statements to the federal government, prosecutors said.

The indictment alleges Litvak, while a registered broker-dealer and managing director at Jefferies & Co., Inc. who worked on the company's trading floor in Stamford, engaged in a scheme to defraud customers on residential mortgage-backed securities trades.

"As alleged, the defendant defrauded six funds established by Treasury and funded principally with government bailout money," U.S. Attorney David Fein said. "Illegally profiting from a federal program designed to assist our nation in recovering from one of our worst economic crises is reprehensible."

Authorities say Litvak defrauded the six funds and private investment funds of more than $2 million. According to the indictment, Litvak was terminated from the company in 2011.

Litvak pleaded not guilty Monday in U.S. District Court in Bridgeport. His attorney, Patrick J. Smith, denied he defrauded anyone.

"These were principal transactions between sophisticated market participants," Smith said in a statement. "All of the profits that Jefferies earned on each trade were well within industry norms for the mortgage-backed bonds in this case. Jesse Litvak did not cheat anyone out of a dime. In fact, most of these trades turned out to be hugely profitable."