2nd Circuit appears sympathetic to Litvak's argument that Wall Street traders often lie
Counsel for a former Wall Street trader convicted of lying to customers about how much he paid for securities argued in federal appeals court Wednesday that he was simply following common industry practice, as was well understood by the sophisticated investors with whom he was dealing.
And the New York-based 2nd U.S. Circuit Court of Appeals appeared sympathetic to that argument, in a case that shook the investment banking industry, Reuters reports.
“We’re dealing here with big boys,” said Judge Barrington Parker at one point during the Manhattan hearing. “I don’t see what the limiting principle is in the government’s position that would not criminalize the back-and-forth in how the market operates.”
Former Jeffries Group Inc. trader Jesse Litvak, 40, was federally convicted in 2014 in New Haven, Connecticut, of securities fraud and defrauding the Troubled Asset Relief Program of the U.S. Treasury Department.
He was sentenced to two years and scheduled to report to prison in November, but was granted bail in October by the 2nd Circuit because his appeal raised “a substantial question of law or fact likely to result in … reversal” of his conviction, according to the Wall Street Journal (sub. req.). An earlier DealBook article published by the New York Times (reg. req.) provides additional details.
Meanwhile, stunned by Litvak’s conviction, investment banks have been tightening their rules about what traders can and cannot say, the Wall Street Journal reports.
“The best practice would be to be truthful, or not to say anything at all, especially in writing these conversations in instant messages,” said partner Elizabeth Baird of Morgan, Lewis & Bockius, who herself is a former bond trader.
“A lot of it is using good judgment,” she told the WSJ. “Don’t make a misrepresentation on something that’s a fact—especially a knowable fact.”
