United States v. Litvak
808 F.3d 160
| 2d Cir. | 2015Background
- Jesse C. Litvak, a Jefferies bond trader, was indicted for eleven counts of securities fraud (15 U.S.C. § 78j(b)), one count of fraud against the United States (18 U.S.C. § 1031), and four counts of making false statements (18 U.S.C. § 1001) for misrepresenting acquisition costs, resale prices, and the existence of third‑party sellers in RMBS transactions.
- Trial evidence showed Litvak routinely told counterparties lower acquisition prices or that he was acting as an intermediary when Jefferies owned the bonds; counterparties testified these representations were "important" and that they were harmed financially.
- A jury convicted Litvak on the securities fraud counts (Counts 1–6, 8–11), the fraud‑against‑the‑United‑States count (Count 12), and the false‑statements counts (13–16). The district court denied post‑trial relief and sentenced Litvak to 24 months’ imprisonment and fines.
- On appeal, the Second Circuit reviewed sufficiency of evidence on materiality (both for Treasury and reasonable investors), the scienter requirement for securities fraud, and several trial evidentiary rulings (notably exclusion of defense expert testimony).
- The court concluded the evidence was insufficient to show Litvak’s statements were capable of influencing a decision of the Department of the Treasury and reversed Counts 12–16; it found materiality as to reasonable investors was properly for the jury, rejected a required‑intent‑to‑harm scienter standard, but found exclusion of key expert testimony was an abuse of discretion requiring vacatur and a new trial on the securities fraud counts (1–6, 8–11).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality to Treasury under §§1001,1031 | Govt: Litvak's misstatements affected PPIF reports and thus could influence Treasury oversight decisions | Litvak: Treasury had no authority over PPIF trading decisions; misstatements could not influence Treasury decisions | Reversed convictions on fraud/false‑statement counts; evidence insufficient to show capability to influence Treasury decisions |
| Materiality to reasonable investors under §10(b) | Govt: Misstatements about prices/identity were important and several counterparties testified they were harmed | Litvak: Misstatements concerned price mechanics, not bond value, thus immaterial as a matter of law (Feinman analog) | Affirmed that materiality is mixed fact/law properly for the jury; reasonable jurors could find materiality |
| Scienter for securities fraud (requirement of intent to harm) | Govt: scienter requires intent to deceive/manipulate/defraud, not intent to harm | Litvak: scienter must include "contemplated harm" or intent to cause loss | Rejected defendant’s proposed intent‑to‑harm requirement; no such element for §10(b) scienter |
| Exclusion of defense expert and related evidentiary rulings | Litvak: exclusion deprived him of critical evidence on valuation, industry practice, agent/principal distinction, and good‑faith inference | Govt: materiality and ultimate issues were for the jury; expert testimony risked invading ultimate issues | Court: exclusion of significant portions of experts (Willner, Menchel) exceeded discretion and was not harmless; vacated securities fraud convictions and remanded for new trial |
Key Cases Cited
- United States v. Coplan, 703 F.3d 46 (2d Cir.) (materiality under §1001 defined as capable of influencing the decisionmaking body)
- United States v. Gaudin, 515 U.S. 506 (U.S. 1995) (materiality requires identifying the decision the agency was trying to make)
- United States v. Rigas, 490 F.3d 208 (2d Cir. 2007) (misstatements must be capable of influencing a decision the bank could make)
- United States v. Bilzerian, 926 F.2d 1285 (2d Cir.) (materiality under securities laws is a mixed question for the jury)
- TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (U.S. 1976) (materiality standard for securities disclosures; objective reasonable‑investor test)
- United States v. Vilar, 729 F.3d 62 (2d Cir.) (scienter for securities fraud requires intent to defraud, not intent to steal)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (scienter defined as intent to deceive, manipulate, or defraud)
- Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir. 1996) (de minimis broker fees not material as a matter of law)