By Jonathan Stempel
NEW HAVEN, Conn., Jan 10 (Reuters) - A former Jefferies Group Inc managing director accused of cheating clients and the government on mortgage securities after the 2008 financial crisis failed to persuade a federal judge to keep jurors from being told that "taxpayers" were victims of his alleged fraud.
At a four-hour hearing on Friday, Chief Judge Janet Hall of the U.S. District Court in Connecticut rejected an argument by lawyers for Jesse Litvak that prosecutors should instead refer to "the government" or "the U.S. Treasury" as alleged victims.
With Litvak looking on, John Hillebrecht, one of his lawyers, argued that his client might be unfairly prejudiced "if a juror thinks, 'This person is stealing my money.'"
Hall recognized the potential problem, asking federal prosecutor Jonathan Francis whether the word "taxpayer" would make jurors "feel they are personally invested in the case." For now, she said she would allow the word but could decide later to restrict its use if she felt that was necessary.
Prosecutors have accused Litvak of cheating customers on residential mortgage-backed securities (RMBS) trades, hoping to boost Jefferies' revenue and his own pay.
The government was also an alleged victim because some of the bond buyers had taken part in the Public-Private Investment Program, a component of the $700 billion federal bailout known as the Troubled Asset Relief Program. PPIP was intended to help rebuild a market for troubled mortgage debt.
Unveiled last Jan. 28, Litvak's case was the first brought under a 2009 law banning "major fraud" against the United States through TARP.
The case took on added importance this week as the government said it was probing fraud in the trading of residential mortgage-backed securities, including in transactions stemming from the bailout.
The Wall Street Journal, citing unnamed sources, said the Department of Justice, Securities and Exchange Commission and TARP special inspector general are probing whether eight or more banks cheated mortgage bond clients after the 2008 crisis.
OTHER TRANSACTIONS
At Friday's hearing, Hall also ruled that Litvak's lawyers should not tell jurors that some 2,700 other transactions he conducted while at Jefferies were proper.
Hall said such a claim would be impossible to verify and is not germane to the 11 transactions discussed in the indictment.
"The fact that I drive 55 miles per hour, 364 days a year on the Merritt Parkway doesn't mean I'm not driving 80 miles per hour on the last day of the year," thereby breaking the law, she said.