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How Jefferies' Compliance Failed in Mortgage Fraud Case

housingwire.com | March 16, 2014

By Trey Garrison

The Securities and Exchange Commission charged global investment bank and brokerage firm Jefferies & Co. on Wednesday with failing to supervise its employees on its mortgage-backed securities desk who were lying to customers about pricing.

Last week a jury convicted Jesse Litvak, a registered broker-dealer and former managing director at Jefferies, of multiple offenses involving a scheme to defraud customers trading in residential mortgage-backed securities. He was convicted of, among other charges, ten counts of securities fraud, one count of defrauding TARP, and four counts of making false statements within the jurisdiction of the United States government.

Bloomberg News, which was inadvertently drawn into the case as Litvak was often making misrepresentations in Bloomberg group chats, has a look at two reasons those in charge of compliance at Jefferies failed in their duty.

But what about the Securities and Exchange Commission's $25 million settlement with Litvak's employer, Jefferies LLC, for failing to supervise him?1 You might as well start with what Jefferies was supposed to do to supervise Litvak, but didn't. That's at paragraphs 9-13 of the SEC order. Basically Jefferies made two errors:

While it had policies to review its traders' electronic communications, and sampled communications to review "both randomly and based on language-specific searches," its review did not include Bloomberg group chats, and Litvak did some of his misrepresenting on those chats.

While it reviewed communications (other than Bloomberg chats), it "failed reasonably to implement this procedure for review of communications in a manner that would reasonably be expected to detect the misrepresentations about purchase price made by Litvak and other representatives2 on Respondent’s MBS desk."

 

Back to March 2014 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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