United States v. Litvak

Decision Date02 July 2014
Docket NumberCriminal Case No. 13–CR–19 JCH.
CourtU.S. District Court — District of Connecticut
PartiesUNITED STATES of America v. Jesse C. LITVAK, Defendant.

Jonathan N. Francis, U.S. Attorney's Office, New Haven, CT, for United States of America.

Andrew M. Zeitlin, Shipman & Goodwin, Stamford, CT, Courtney G. Saleski, DLA Piper, LLP, Philadelphia, PA, John Michael Hillebrecht, Patrick Joseph Smith, Sarah B. Zimmer, DLA Piper U.S. LLP, New York, NY, Ross H. Garber, Michael G. Chase, Shipman & Goodwin–Constplza, Hartford, CT, for Defendant.


JANET C. HALL, District Judge.


On March 7, 2014, defendant Jesse C. Litvak was convicted of ten counts of securities fraud, one count of Trouble Asset Relief Program (“TARP”) fraud, and four counts of making a false statement in a matter within the jurisdiction of the U.S. government. Litvak now moves for a judgment of acquittal pursuant to Rule 29 of the Federal Rules of Criminal Procedure. In the alternative, Litvak moves for a new trial pursuant to Rule 33.

For the reasons set forth below, Litvak's Motions for a Judgment of Acquittal and for a New Trial (Doc. No. 237) as well as his pending Motion for Directed Verdict (Doc. No. 212) are DENIED.


On January 25, 2013, a federal grand jury returned a sixteen-count indictment against Litvak, charging him with securities fraud, in violation of 15 U.S.C. §§ 78j(b) & 78ff (Counts One through Eleven); TARP fraud, in violation of 18 U.S.C. § 1031 (Count Twelve); and making false statements in a matter within the jurisdiction of the U.S. government, in violation of 18 U.S.C. § 1001 (Counts Thirteen through Sixteen). Indictment (Doc. No. 1) ¶¶ 27–60. The Indictment alleged that Litvak, a licensed securities broker and former senior trader and managing director at Jeffries & Co., Inc. (“Jeffries”), defrauded six Public–Private Investment Funds (“PPIFs”) and at least fourteen privately funded entities by making misrepresentations in the purchase and sale of residential mortgage-backed securities (“RMBS”). Id. ¶¶ 1, 11–12 & 33–34. In particular, the Indictment alleged that, as part of his scheme to defraud, Litvak lied about the price at which seller and buyer agreed to sell and buy a security through Jeffries in bid list and order trades, id. ¶ 36, and invented nonexistent sellers with whom Litvak would pretend to negotiate on victims' behalf in inventory trades, where Jeffries already held the security, id. ¶ 47; and that, through this scheme, Litvak increased the profitability of the charged trades, id. ¶¶ 32, 33(a), 34, 36 & 47.

On February 17, 2014, the day before trial, the government moved to dismiss Count Seven, which Motion the court granted. The government's evidence at trial consisted of: (1) time-stamped verbatim online chats (“Bloomberg chats”) showing communications between Litvak, co-workers at Jeffries, and victims; (2) trade tickets showing the price at which Jeffries bought and sold a given security; (3) testimony by a Bloomberg employee, Adam Wolf, and a custodian at Jeffries, Tracy Lincoln, as to the nature and accuracy of the Bloomberg chats; (4) testimony by another Jeffries employee, Al Paradiso, as to the accuracy of the trade tickets; (5) testimony by Thomas Carocci of the Financial Industry Regulatory Authority (“FINRA”) as to the Series 7 examination passed by Litvak; (6) testimony by victims—Michael Canter of AllianceBernstein, Alan Vlajinac of Wellington Management Company (“Wellington”), Brian Norris of Invesco, Joel Wollman of QVT Financial, Vladimir Lemin of Magnetar, and Katherine Corso of York Capital—as to their negotiations with Litvak and the impact of his lies on trade execution; (7) testimony by David Miller, former Chief of Investment for the Office of Financial Stability at Treasury, describing the Public–Private Investment Program (“PPIP”) through which the PPIFs were established; and (8) testimony by Special Agent James O'Connor of the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), who investigated Litvak following Canter's report to Treasury of possible fraud in connection with securities transactions between Litvak and AllianceBernstein, one of the PPIFs.

On February 26, 2014, at the close of the government's case, Litvak moved for a judgment of acquittal pursuant to Rule 29(a). See Oral Motion for Directed Verdict (Doc. No. 212); Def's Trial Mem. in Supp. of Mot. for J. of Acquittal (Doc. No. 210). The court reserved pursuant to Rule 29(b). On March 5, the case was submitted to the jury. On March 7, the jury returned a verdict of guilty on all remaining counts: Counts One through Six and Eight through Eleven of securities fraud; Count Twelve of TARP fraud; and Counts Thirteen through Sixteen of making false statements. See Verdict (Doc. No. 229). Following the jury's verdict, Litvak filed the instant post-trial Motions.

A. Legal Standard

Rule 29 requires the court, upon motion by the defendant, to “enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction.” Fed.R.Crim.P. 29(a). However, in challenging the sufficiency of the evidence supporting his conviction, “the defendant faces an uphill battle, and bears a very heavy burden.” United States v. Mi Sun Cho, 713 F.3d 716, 720 (2d Cir.2013) (citation and internal quotation marks omitted). In deciding such a motion, the court must view the evidence in the light most favorable to the government, draw all inferences in favor of the government, and defer to the jury's assessment of the witnesses' credibility. United States v. Hawkins, 547 F.3d 66, 70 (2d Cir.2008). The jury verdict should stand so long as “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Mi Sun Cho, 713 F.3d at 720 (quoting Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979) ). In deciding a Rule 29 motion, “the evidence must be viewed in its totality, as each fact may gain color from others,” and the court must exercise care not to substitute its determination of the weight of the evidence, and of the reasonable inferences to be drawn therefrom, for that of the jury. United States v. Cassese, 428 F.3d 92, 98–99 (2d Cir.2005).

B. Securities Fraud

To convict Litvak of the crime of securities fraud charged in Counts One through Six and Eight through Eleven, the jury had to find that the government had proven beyond a reasonable doubt the following three elements:

(1) In connection with the purchase or sale of the security identified in that count, [ ] Litvak—
(a) employed a device, scheme, or artifice to defraud, or
(b) made an untrue statement of a material fact or omitted to state a material fact which made what was said, under the circumstances, misleading, or
(c) engaged in an act, practice, or course of business that operated, or would operate, as a fraud or deceit upon a purchaser or seller;
(2) [he] acted willfully, knowingly, and with the intent to defraud; and
(3) [he] knowingly used, or caused to be used, the mails or any means or instruments of transportation or communication in interstate commerce in furtherance of the fraudulent conduct.

Jury Charge (Doc. No. 225) at 46; see 15 U.S.C. § 78j ; 17 C.F.R. § 240.10b–5 (Rule 10b–5); 3 Leonard B. Sand et al., Modern Federal Jury Instructions: Criminal, Instruction 57–20. Litvak contests the sufficiency of the evidence as to the first and second elements, specifically, the government's proof of materiality and intent to defraud.

1. Materiality

To find that the government had proven beyond a reasonable doubt the first element of securities fraud, the jury had to find that Litvak's lies were material under the circumstances. In the context of securities fraud, materiality means that Litvak's lies “would have been significant to a reasonable investor in making an investment decision,” that is, that his lies “significantly altered the total mix of information available.” Jury Charge at 49; see United States v. Vilar, 729 F.3d 62, 88–89 (2d Cir.2013) ([T]he long-established law of [this] Circuit ... is that, when the government (as opposed to a private plaintiff) brings a civil or criminal action under Section 10(b) and Rule 10b–5, it need only prove, in addition to scienter, materiality, meaning a substantial likelihood that a reasonable investor would find the omission or misrepresentation important in making an investment decision, and not actual reliance.”); Ganino v. Citizens Utilities Co., 228 F.3d 154, 161–62 (2d Cir.2000) (citing TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976) ); 3 Sand et al., supra, Instruction 57–21. The court's full instruction on materiality was lengthy in light of the importance of this element to this case. See Jury Charge at 49–50.

In arguing that proof of materiality is lacking, Litvak claims that his lies could not have been material, given that his victims were professional investment managers and that, in the RMBS market at issue, they rarely had access to the information about which Litvak lied. See Def.'s Mem. in Supp. of Mot. for J. of Acquittal (“Def.'s Mem.”) (Doc. No. 237–1) at 13–16. The government does not contest these facts, only the conclusion that Litvak argues one must necessarily draw from them that trade execution and transaction costs are per se incidental, i.e., not material, to such investors.

Litvak has offered this argument regarding the insignificance of his lies to sophisticated investors in the RMBS market several times, including in his pretrial Motion to Dismiss the Indictment (Doc. No. 52). However, there is no bright-line test for materiality, which is a mixed question of fact and law for the jury. TSC Indus., 426 U.S. at 450, 96 S.Ct. 2126. Thus, the court left this determination, in the first...

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