Appeals court skeptical of fairness of trader's conviction

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NEW YORK (AP) — An appeals court panel on Wednesday expressed doubts about the fairness of a prosecution that led to a prison sentence for a man convicted of defrauding a government bailout program.

A three-judge panel of the 2nd U.S. Circuit Court of Appeals had plenty of questions for a prosecutor as it conducted oral arguments in an appeal by Jesse Litvak, a bond trader on the Stamford, Connecticut, trading floor at Jefferies & Co. Inc.

Litvak, who's from New York, was sentenced last year to two years in prison after a jury convicted him of securities fraud, defrauding the Troubled Asset Relief Program and making false statements to the federal government. He has not had to serve his sentence pending appeal.

The conviction made Litvak, 40, the first person convicted of a crime related to the program, which used bailout funds in the financial meltdown to boost the economy.

Assistant U.S. Attorney Jonathan Francis found himself repeatedly defending the prosecution as he explained how what Litvak told his customers were lies rather than shrewd negotiating tactics.

"We're not criminalizing making money here," Francis said as he was questioned by judges Barrington D. Parker, Susan L. Carney and Chester J. Straub.

He called the prosecution a "classic securities case" involving a "broker lying about facts to rip off his customers."

At trial, prosecutors said Litvak defrauded about 35 customers representing private investment funds and funds established by the U.S. Department of the Treasury with government bailout money in response to the 2008 financial crisis. They said he duped clients into paying artificially increased prices or accepting artificially decreased prices for bonds they were buying or selling, collecting $6.3 million in fraudulent profits for his company.

Litvak argued he was singled out for conduct others also committed.

But Francis labeled it the "everyone-does-it defense" and said it was not unlike someone caught speeding who claims other cars were going faster.

Straub and Parker joined in questioning Francis about the fairness of excluding a witness who would have testified about common practices in Litvak's industry and the fact that sophisticated customers like the financial professionals Litvak dealt with would have ignored his factual claims anyway in making trading decisions.

Straub, in particular, was so adamant on the subject that Francis eventually changed tactics, saying that the fairness of the trial was not compromised even if the witness should have been allowed to testify because the defense presented the same information through other witnesses.

Litvak's attorney, Kannon K. Shanmugam, responded to a question by Carney about ensuring that the markets are kept honest by saying that Litvak's clients were not naive investors.

"Here, you're dealing with sophisticated counterparties," he said.

Shanmugam called it an "astonishing proposition" by Francis to suggest that every lie told on Wall Street as traders negotiate prices is criminal.

A ruling in the case is expected later this year.

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