On Jan. 28, 2013, the U.S. Attorney’s Office for the District of Connecticut, with much fanfare, announced the indictment of former Jefferies & Co. bond trader Jesse Litvak. The government charged him with committing criminal securities fraud by misrepresenting to customers the amount of money Jefferies made on particular bond trades.
Over the next five years, Litvak endured two federal criminal jury trials, two convictions, eight months in federal prison as part of a two-year sentence, imposition of a $2 million fine, and two successful appeals to the 2nd U.S. Circuit Court of Appeals.
At the same time, the Justice Department, the Securities and Exchange Commission, and the Financial Industry Regulatory Authority canvassed Wall Street in search of evidence of similar conduct. Those agencies ultimately brought enforcement actions against several Wall Street banks and more than a dozen bond traders, collecting more than $75 million in disgorgement and fines.
But after more than half a decade of investigations and prosecutions, last year the DOJ quietly moved to dismiss all charges against Litvak, with prejudice. Soon thereafter, the SEC moved to dismiss its civil complaint. In short, the man whose conduct spawned a cottage industry of internal reviews, investigations and settlements ended up not being found guilty of, or liable for, any misconduct at all.
This article explains how this remarkable turn of events occurred and explores the lessons we can learn from it.