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On Monday, following two reversals of convictions, the U.S. Attorney’s Office for the District of Connecticut moved to dismiss the sole securities fraud claim remaining against former Jefferies bond trader, Jesse Litvak, bringing an end to the 5 1/2-year long case against him.[1]  During the case’s winding procedural path, the Government twice secured convictions against Litvak by jury trial—on the theory that Litvak’s alleged misstatements about his own costs and profit margins for residential mortgage-backed securities (“RMBS”) trades would have been material to the decision-making of a reasonable (and often sophisticated) investor-buyer.  And twice the Second Circuit overturned the convictions on narrow and technical grounds.  Notably, even while seeking to dismiss the remaining charge, the Government maintains in its filing that the Second Circuit’s decisions left undisturbed the soundness of its legal theories—namely that a broker-dealer’s misstatements relating to his own profits to sophisticated counterparties could satisfy the materiality requirement for securities fraud as a matter of law.[2]  Thus, notwithstanding the additional hurdles presented by the Second Circuit’s decisions, the Government’s decision not to pursue yet another trial against Litvak does not signal a death knell for all similar charges in the future, particularly those that are currently pending and arose as part of the Government’s RMBS probe.  But the somewhat torturous history of the Litvak case does highlight the difficulty for the Government in establishing the materiality of alleged misstatements made to sophisticated securities professionals who undertake their own analysis of trades.  Indeed, in many of these RMBS cases, the Government faced an uphill battle from the start, evidenced by its inability to secure convictions in many of them.
Continue Reading Two Strikes and You’re Out: The Litvak Saga Comes to an End

The long-running criminal case against Jesse Litvak seems to have come to an end, with the U.S. Attorney’s Office for the District of Connecticut filing a motion yesterday seeking voluntary dismissal of the sole remaining charge.[1]  This action—which has resulted in the government twice obtaining a criminal conviction against Litvak, only to see both convictions overturned by the Second Circuit—raised somewhat novel questions of the materiality of information a broker-dealer provides about its own costs or profit margins to sophisticated counterparties.  Notably, even while seeking dismissal, the Government again reiterated its view that the legal theory it pursued, and which the Second Circuit twice appeared to credit, remains sound and (presumably) actionable in future cases.[2]
Continue Reading Government Moves to Voluntarily Dismiss Remaining Charge Against Jesse Litvak, Foregoing a Third Trial

A federal district court in California has become the latest court to hold that the 10-year statute of limitations under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) for offenses “affecting a financial institution” extends to offenses committed by banks and their employees, not just offenses committed against them.  The decision is the latest chapter in a long-running debate between the Government and financial institutions that has played out in a series of federal court decisions over the last three years regarding interpretation of FIRREA.  While this is not the first decision to hold that the 10-year limitations period applies to offenses by financial institutions, it is the first outside of the Second Circuit.
Continue Reading California District Court Holds that FIRREA’s 10-Year Statute of Limitations Reaches Risks Caused to Financial Institutions by Their Own Employees

On June 4, 2018, the U.S. Department of Justice announced that Société Générale S.A. (“Société Générale”) and its wholly-owned subsidiary, SGA Société Générale Acceptance, N.V. (“SGA”), have agreed to pay over $1 billion in total penalties to U.S. and French authorities in connection with bribe payments to Libyan officials and manipulation of the London Interbank…

On May 3, the Second Circuit vacated on evidentiary grounds Jesse Litvak’s conviction – after a second trial – on a single count of securities fraud related to trades of residential mortgage backed securities (“RMBS”) and remanded the case to the United States District Court for the District of Connecticut.[1]  This ruling is the latest setback for the government, as the Second Circuit in 2015 had vacated Litvak’s prior conviction on ten counts of securities fraud, one count of fraud against the Troubled Asset Relief Program (“TARP”), and four counts of making false statements to the government, following his first trial.[2]
Continue Reading Second Circuit Again Reverses Fraud Conviction of RMBS Trader Litvak

On April 25, 2018, a jury in the United States District Court in Connecticut acquitted former UBS AG (“UBS”) trader Andre Flotron of conspiring to manipulate the precious metals futures market through “spoofing.”  The verdict, the first acquittal in a criminal spoofing-related case since the practice was outlawed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010, reflects the difficulties the government faces in cracking down on the practice.
Continue Reading Acquittal of Former UBS Trader Signals Potential Challenges for Government’s Anti-Spoofing Initiative

On April 18, 2018, the U.S. Supreme Court heard oral argument in Lagos v. United States.  Lagos presents the important issue of whether a corporate victim’s professional costs—such as investigatory and legal expenses—incurred as a result of a criminal defendant’s offense conduct must be reimbursed under the Mandatory Victims Restitution Act.

The court’s decision…

On March 27, 2018, the Canadian Government announced the introduction of legislative amendments to bring deferred prosecution agreements (“DPA”) to Canada.  The legislation, which would create the “Remediation Agreement Regime” (“RAR”), follows a global trend.  In recent years, DPA regimes have been introduced in the U.K. and France, and considered in a variety of other common law jurisdictions including Singapore and Australia.  Although broadly patterned on an approach pioneered in the United States, like the statutory enactments in other countries adopted more recently, the Canadian RAR regime is likely to be considerably more structured and involve much more substantive judicial supervision.
Continue Reading Canada Proposes New Deferred Prosecution Agreement Program

In an indictment unsealed on March 23, 2018, the Department of Justice (DOJ) brought criminal charges against nine Iranian nationals affiliated with the Mabna Institute in Iran, alleging computer intrusion, fraud, and aggravated identity theft.[1]  Prosecutors charged the defendants with conspiring to steal a massive amount of intellectual property from universities, private companies, and government institutions worldwide, obtaining more than 31 terabytes of data.  The defendants allegedly acted on behalf of the Islamic Revolutionary Guard Corps (IRGC), which is an arm of the Iranian government whose responsibilities include foreign operations and intelligence gathering.  In addition to the announced charges, the nine defendants and the Mabna Institute were also designated for sanctions by the Treasury Department, Office of Foreign Asset Control, pursuant to Executive Order 13694 “Blocking the Property of certain Persons Engaging in Significant Malicious Cyber-Enabled Activities.”[2]
Continue Reading Department of Justice Indicts Iranian Hackers, Revealing Significant Data Breach and Targeting of Intellectual Property of Private Companies and Educational Institutions

The European Commission’s proposal for a Regulation on mutual recognition of asset freeze and confiscation orders (the “Proposed Regulation”),[1] introduced in December 2016, aims at improving the cross-border enforcement of asset freeze and confiscation orders within the EU.  It is part of a broader set of measures aimed at combating financial crimes, which includes a proposed Directive on countering money laundering through criminal law[2] and a proposed revised Regulation on controls on cash entering or leaving the Union.[3]

In January 2018, the Civil Liberties, Justice and Home Affairs Committee of the European Parliament (the “EP Committee”) issued a report on the Proposed Regulation, which proposes certain amendments to the Proposed Regulation aimed at taking into consideration fundamental rights guaranteed by the case law of the European courts, such as the right to property, due process, effective remedy and access to justice.  In particular, in line with requests made by several EU Member States, the EP Committee proposes to include in the Proposed Regulation a provision for the non-recognition of orders based on non-compliance with fundamental rights.
Continue Reading Striking the Balance – Mutual Recognition of Freezing and Confiscation Orders Within the EU and Fundamental Rights