## Facts

- Jesse C. Litvak was an RMBS trader at Jefferies & Co., a broker-dealer that traded RMBS in the over-the-counter secondary market.
- The government alleged that from 2009 to 2011 Litvak made deceptive statements to institutional trading counterparties about Jefferies’ acquisition cost, negotiations with purported sellers, and whether he was acting as an intermediary for a third-party seller.
- The alleged purpose of the statements was to increase the price paid by customers and widen Jefferies’ trading profits.
- Some counterparties participated in Treasury’s PPIP program associated with TARP, through which private managers invested alongside government support.
- A federal grand jury charged Litvak with securities fraud under § 10(b)/Rule 10b-5, fraud against the United States (18 U.S.C. § 1031), and making false statements (18 U.S.C. § 1001).
- A jury convicted Litvak of most securities-fraud counts and of the § 1031 and § 1001 counts; the district court imposed imprisonment and a fine.
- On appeal, Litvak challenged, among other things, the sufficiency of evidence of materiality on the government-related counts and evidentiary rulings limiting defense proof on RMBS market practices.

## Issues

1. Whether evidence was sufficient to prove Litvak’s statements were material to the Department of the Treasury for purposes of 18 U.S.C. § 1031 and 18 U.S.C. § 1001.
2. Whether Litvak’s alleged negotiation-related misstatements were immaterial as a matter of law for § 10(b)/Rule 10b-5 securities fraud.
3. Whether securities-fraud scienter requires proof that the defendant specifically “contemplated harm” to counterparties.
4. Whether the district court abused its discretion by excluding portions of defense expert testimony on RMBS trading practices and market sophistication, and whether any error was harmless.

## Decision

- The Second Circuit reversed the convictions under 18 U.S.C. § 1031 and 18 U.S.C. § 1001, holding the evidence was insufficient for a rational jury to find the statements material to Treasury.
- The court rejected Litvak’s claim that the alleged misstatements were immaterial as a matter of law for securities fraud, holding a rational jury could find materiality and the question was properly for the jury.
- The court rejected a requirement that the government prove “contemplated harm” as a distinct component of securities-fraud scienter.
- The court vacated the securities-fraud convictions and remanded for a new trial, holding the exclusion of certain defense expert testimony exceeded allowable discretion and was not harmless.

## Legal Principles

- For 18 U.S.C. §§ 1031 and 1001, the government must prove materiality to the pertinent government decisionmaker; insufficient proof that a statement could influence that entity requires reversal.
- Under § 10(b)/Rule 10b-5, statements made in the course of price negotiation can be material; institutional sophistication does not make such statements categorically immaterial as a matter of law.
- Securities-fraud scienter is satisfied by intent to deceive, manipulate, or defraud; the government need not separately prove that the defendant intended a specific economic loss to the counterparty.
- A defendant is entitled to present a market-practice defense through admissible expert evidence where it bears on materiality and scienter; excluding key expert testimony may require a new trial if prejudice is shown.

## Conclusion

The Second Circuit reversed Litvak’s government-fraud and false-statement convictions for lack of evidence that his statements were material to Treasury, and it vacated and remanded the securities-fraud convictions because improper limits on defense expert testimony prevented the jury from fully considering market-practice evidence relevant to materiality and intent.


United States v. Litvak, 808 F.3d 160 (2d Cir. 2015)