United States v. Gramins
939 F.3d 429
| 2d Cir. | 2019Background
- Michael Gramins, a Nomura RMBS trader, was convicted by a jury of conspiracy to commit securities and wire fraud for lying to counterparties in order and BWIC trades to widen spreads and earn commissions.
- The government proved the scheme with testimony from co‑conspirator traders and several counterparties describing specific trades (AHMA, WAMU, INDX, JPMAC, PPSI) where Gramins misrepresented bids/offers.
- At trial, QVT trader Joel Wollman testified that when Gramins was "brokering" trades he credited Gramins’ price representations and expected truthful relay of counterparties’ offers.
- After Gramins’ conviction the Second Circuit decided Litvak II, holding that a counterparty’s erroneous belief that a broker acted as the counterparty’s agent is irrelevant and unduly prejudicial on materiality grounds (FRE 401/403).
- Gramins invoked Litvak II; the district court granted a new trial, concluding Wollman’s testimony implicitly suggested an agency relationship and thus prejudiced the jury.
- The Second Circuit reversed: Wollman’s testimony did not misstate agency law, was corroborated by other counterparties, was relevant to materiality, did not confuse the jury (which received repeated instructions that brokers acted as principals), and any error was harmless; conviction reinstated and case remanded for sentencing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of counterparty testimony bearing on materiality under FRE 401 | Government: testimony that counterparties relied on broker price statements is relevant to what a reasonable RMBS investor would consider important. | Gramins: Wollman’s testimony implicitly treated Gramins as an agent, making it irrelevant and prejudicial under Litvak II. | Testimony was relevant; Wollman did not assert an agency belief and his views were not idiosyncratic—admission did not violate FRE 401. |
| Whether testimony should be excluded under FRE 403 as confusing or unduly prejudicial | Government: testimony clarified different expectations in order/BWIC vs. inventory trades and did not mislead jury. | Gramins: testimony risked implying fiduciary duties and misled jury about legal relationship. | No 403 error: cross‑examination, repeated prosecutor/defense statements, and jury instructions made clear brokers acted as principals. |
| Application of Litvak II (idiosyncratic/erroneous agency testimony) | Government: Litvak II targeted explicit, erroneous agency assertions like Norris’s; Wollman’s statements are materially different. | Gramins: Litvak II requires a new trial because Wollman "strongly implied" agency. | Litvak II distinguished: Wollman’s testimony neither erroneous nor idiosyncratic and thus did not trigger Litvak II exclusion. |
| Harmlessness and cumulative prejudice (including rebuttal remarks about uncharged trades and rhetorical "lied to take money") | Government: any error was harmless given corroborating evidence, mens rea proof (post‑Litvak JPMAC trade), and curative instructions. | Gramins: cumulative effect of testimony plus rebuttal remarks warrants new trial. | Any error was harmless under McGinn factors; rebuttal comments addressed by instructions and not individually dispositive; no cumulative prejudice. |
Key Cases Cited
- United States v. Litvak, 889 F.3d 56 (2d Cir. 2018) (vacating Litvak conviction where counterparty’s erroneous belief that broker acted as agent was irrelevant and prejudicial)
- United States v. Litvak, 808 F.3d 160 (2d Cir. 2015) (discussing materiality and admissibility of counterparty point‑of‑view testimony)
- Basic Inc. v. Levinson, 485 U.S. 224 (Sup. Ct. 1988) (defining materiality under securities law — the ‘total mix’ standard)
- TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (Sup. Ct. 1976) (standard for materiality: substantial likelihood that disclosure would have altered the total mix of information)
- United States v. Vilar, 729 F.3d 62 (2d Cir. 2013) (elements of securities fraud, including material misrepresentation and scienter)
- United States v. McGinn, 787 F.3d 116 (2d Cir. 2015) (harmless‑error factors for admission of improperly admitted evidence)
- Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (Sup. Ct. 1990) (abuse‑of‑discretion review standard for district court rulings)