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UPDATE 1-Lawyers for ex-Jefferies trader go on offensive at fraud trial

* Jesse Litvak accused of securities fraud, TARP fraud

* Jefferies is accused of condoning defendant's activity

NEW HAVEN, Conn., Feb 27 (Reuters) - Lawyers defending Jesse Litvak at the former Jefferies Group Inc trader's federal fraud trial on Thursday accused the firm of firing him and then helping prosecutors out of concern that it might otherwise lose a major client.

Johan Eveland, a managing director and co-head of fixed income at Jefferies, testified in U.S. District Court in New Haven, Connecticut, that he had been part of the team of supervisors who decided to fire Litvak in December 2011.

The dismissal came after AllianceBernstein Holding LP complained that Litvak had "lied, misled and defrauded" it on several bond trades, according to prior testimony.

"Isn't it true, Mr. Eveland, that AllianceBernstein made it crystal clear that it would never do business with Jefferies as long as Jesse Litvak was still there?" Litvak's attorney, Patrick Smith, asked. "Weren't you and aren't you concerned that you could become the subject of a criminal investigation?"

"No, I don't believe so," Eveland answered, during questioning as several jurors took notes and shook their heads.

Prosecutors accused Litvak of defrauding customers in a more-than-$2 million scheme involving mortgage-backed securities, by misleading them about prices in a manner that allowed him to generate higher profits and commissions.

Litvak's lawyers have argued that it was common in bond trading for clients to be misled about prices and that their client's activities were not crimes.

During his second day on the witness stand, Eveland at times seemed uncertain about how to answer.

Chief Judge Janet Hall told jurors that Smith was trying to impeach Eveland by showing how Jefferies treated Litvak differently from colleagues.

Part of the defense is that Jefferies looked the other way when some traders engaged in the same practices as Litvak, and that the firm would not have done so had it considered those practices improper or illegal.

Eveland testified that Jefferies, now part of Leucadia National Corp, is reviewing some of those traders' practices.

Asked by Assistant U.S. Attorney Eric Glover why Litvak was ultimately fired while colleagues were not, Eveland said: "It was the magnitude and extent of what (he) did."

The case against Litvak, 39, is the first brought under a 2009 law banning major fraud against the United States through the $700 billion federal bailout known as the Troubled Asset Relief Program, or TARP.

Litvak has pleaded not guilty to 10 counts of securities fraud, four counts of making false statements and one count of fraud connected to TARP. If convicted, he faces up to 20 years in prison on each securities fraud count. A U.S. Securities and Exchange Commission civil lawsuit is also pending.

Thursday's testimony ended with defense witness Marc Menchel, a principal at Menchel Consulting LLC and self-described "regulatory consultant," on the stand.

No court sessions are planned for Friday or Monday. Menchel is expected to resume testifying on Tuesday, followed by other defense witnesses.

It remains unclear whether Litvak will testify. Hall indicated on Thursday that it is possible that closing arguments may take place early next week. Prosecutors took about six days to present their case, starting on Feb. 18.

The cases are U.S. v. Litvak, U.S. District Court, District of Connecticut, No. 13-cr-00019; and SEC v. Litvak in the same court, No. 13-00132.