UPDATE 1-Ex-Jefferies trader gets 2 years in prison in fraud case

(Adds quote from judge, background)

NEW HAVEN, Conn., July 23 (Reuters) - A former Jefferies Group Inc managing director convicted of defrauding investors who traded mortgage bonds through a government program established after the 2008 financial crisis was sentenced on Wednesday to two years in prison.

Jesse Litvak, 39, was convicted on March 7 on all 15 counts, including 10 counts of securities fraud and one count of fraud under the federal bailout known as the Troubled Asset Relief Program (TARP).

Litvak was the first person charged under a 2009 law banning major fraud against the United States through TARP.

Litvak, a married father of two, was sentenced by Chief Judge Janet Hall of the U.S. District Court in New Haven, Connecticut, who presided over his jury trial. Hall also fined him $1.75 million.

"I do not view you as singled out," the judge told Litvak before pronouncing sentence. "You lied. Maybe that's what people do every day on Wall Street, but that still doesn't make it legal."

Litvak's conviction was seen as a boost for the U.S. Department of Justice, which has been criticized for not prosecuting enough people on Wall Street over misconduct before, during and after the financial crisis.

Prosecutors had accused Litvak of lying to customers such as AllianceBernstein Holding LP about the prices of mortgage-backed securities from 2009 to 2011, generating more than $2 million for Jefferies and boosting his own pay prospects.

Litvak allegedly deceived customers by inflating prices, concealing what Jefferies paid for bonds, and inventing sellers.

Prosecutors said cheated investors included participants in the Public-Private Investment Program, a TARP initiative designed to restart the mortgage debt market.

Litvak countered that his customers were professional investors who could tell whether prices were fair, and that his activities were commonplace in the industry.

Prosecutors asked for a nine-year sentence for Litvak and a $5 million fine. Litvak's lawyers sought a term of no more than 14 months.

Jefferies, a unit of Leucadia National Corp, agreed on March 12 to enter a nonprosecution agreement and pay $25 million to settle criminal and civil probes into its alleged failure to supervise Litvak and other traders.

The case is U.S. v. Litvak, U.S. District Court, District of Connecticut, No. 13-cr-00019.

(Reporting by Jonathan Stempel in New Haven, Connecticut; Editing by Noeleen Walder and Jeffrey Benkoe)