United States of America v. Litvak
Court Docket Sheet

2nd Circuit Court of Appeals

2017-01464 (ca2)

MOTION, for bail, on behalf of Appellant Jesse C. Litvak, FILED. Service date 06/30/2017 by CM/ECF. [2070435] [17-1464] [Entered: 06/30/2017 04:30 PM]

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Thurgood Marshall U.S. Courthouse 40 Foley Square, New York, NY 10007 Telephone: 212-857-8500 MOTION INFORMATION STATEMENT 17-1464 Docket Number(s): ________________________________________ _______________Caption [use short title]_____________________ Release Pending Appeal Motion for: ______________________________________________ ________________________________________________________ ________________________________________________________ Set forth below precise, complete statement of relief sought: Mr. Litvak requests release on bail pending appeal ________________________________________________________ United States of America v. Jesse C. Litvak of his criminal conviction. He also requests that the Court ________________________________________________________ temporarily stay his surrender date pending its decision ________________________________________________________ on this motion if the motion cannot be decided by ________________________________________________________ September 12, 2017. ________________________________________________________ ________________________________________________________ Jesse C. Litvak MOVING PARTY:_______________________________________ United States of America OPPOSING PARTY:____________________________________________ ___Plaintiff ✔ ___Defendant ✔ ___Appellant/Petitioner ___Appellee/Respondent Kannon K. Shanmugam MOVING ATTORNEY:___________________________________ Jonathan N. Francis OPPOSING ATTORNEY:________________________________________ [name of attorney, with firm, address, phone number and e-mail] 725 Twelfth Street, N.W. ________________________________________________________ 157 Church St., 25th floor _______________________________________________________________ Washington, DC 20005 ________________________________________________________ New Haven, CT 06510 _______________________________________________________________ (202) 434-5050; kshanmugam@wc.com ________________________________________________________ (203) 821-3700; jonathan.francis@usdoj.gov _______________________________________________________________ U.S. District Court for the District of Connecticut-Hon. Janet C. Hall Court-Judge/Agency appealed from: _________________________________________________________________________________________ Please check appropriate boxes: FOR EMERGENCY MOTIONS, MOTIONS FOR STAYS AND INJUCTIONS PENDING APPEAL: Has movant notified opposing counsel (required by Local Rule 27.1): Has this request for relief been made below? ✔ ___Yes ___No ✔ ___Yes ___No (explain):__________________________ Has this relief been previously sought in this court? ✔ ___Yes ___No _______________________________________________ Requested return date and explanation of emergency: ________________ Mr. Litvak has been ordered by the Bureau of Prisons to surrender on September 12, 2017. _____________________________________________________________ Opposing counsel’s position on motion: _____________________________________________________________ ✔ ___Unopposed ___Opposed ___Don’t Know _____________________________________________________________ Does opposing counsel intend to file a response: _____________________________________________________________ ✔ ___Yes ___No ___Don’t Know Is oral argument on motion requested? ✔ ___Yes ___No (requests for oral argument will not necessarily be granted) Has argument date of appeal been set? ✔ ___ Yes ___No If yes, enter date:_______________________________________________________ Signature of Moving Attorney: _________________________________ 06/30/2017/s/Kannon K. Shanmugam Date:__________________ ✔ Service by: ___CM/ECF ___Other [Attach proof of service] Form T F T-1080 1080 ((rev.12-13) 12 13) 17-1464 In the United States Court of Appeals for the Second Circuit UNITED STATES OF AMERICA, APPELLEE v. JESSE C. LITVAK, DEFENDANT-APPELLANT ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT (CRIM. NO. 13-19) (THE HONORABLE JANET C. HALL, C.J.) MOTION FOR RELEASE PENDING APPEAL KANNON K. SHANMUGAM DANE H. BUTSWINKAS ALLISON JONES RUSHING MENG JIA YANG* WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 * Admitted in California and practicing law in the District of Columbia pending application for admission to the D.C. Bar under the supervision of bar members pursuant to D.C. Court of Appeals Rule 49(c)(8). TABLE OF CONTENTS Page Introduction.............................................................................................................. 1 Statement................................................................................................................. 3 Argument.................................................................................................................. 8 I. It is undisputed that Mr. Litvak poses no risk of flight or danger to the community........................................................................................... 9 II. Mr. Litvak’s appeal raises substantial questions likely to result in reversal or a new trial................................................................................... 9 A. The appeal raises substantial questions........................................... 9 1. Materiality................................................................................. 9 2. Evidentiary rulings................................................................. 18 B. A favorable ruling would lead to reversal or a new trial.............. 21 Conclusion............................................................................................................... 24 TABLE OF AUTHORITIES CASES Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609 (7th Cir. 2012)............................................................................. 16 Basic Inc. v. Levinson, 485 U.S. 224 (6th Cir.1988).......................................... 10 Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir. 1996)............................................................................ 4, 15 Gupta v. United States, No. 12-4448, Dkt. No. 47 (2d Cir. 2012)..................... 22 List v. Fashion Park, Inc., 340 F.2d 457 (2d Cir. 1965).................................... 14 Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876 (2d Cir. 1972).............................................................................. 14 (i) Page Cases—continued: San Leandro Emergency Medical Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801 (2d Cir. 1996)......................................... 17 SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968).............................................................................. 14 United States v. Abuhamra, 389 F.3d 309 (2d Cir. 2004)................................... 8 United States v. Certified Environmental Services, Inc., 753 F.3d 72 (2d Cir. 2014)................................................................................ 20 United States v. English, 629 F.3d 311 (2d Cir. 2011)......................................... 8 United States v. Garcia, 340 F.3d 1013 (9th Cir. 2003)..................................... 22 United States v. Randell, 761 F.2d 122 (2d Cir. 1985).................................. 9, 21 United States v. Vilar, 729 F.3d 62 (2d Cir. 2013)............................................. 10 United States v. Weimert, 819 F.3d 351 (7th Cir. 2016).................................... 16 Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016)................................................................................. 10, 12 STATUTES 15 U.S.C. § 78j(b)..................................................................................................... 3 15 U.S.C. § 78ff......................................................................................................... 3 18 U.S.C. § 1001....................................................................................................... 3 18 U.S.C. § 1031....................................................................................................... 3 18 U.S.C. § 3143(b)................................................................................................... 8 ii Page MISCELLANEOUS United States Courts, Judicial Business of the United States Courts, tbl. B-4A (2016).................................................................................... 21 iii Pursuant to Federal Rule of Appellate Procedure 9(b) and 18 U.S.C. § 3143(b), defendant-appellant Jesse Litvak moves for an order granting con-tinued release pending appeal.1 INTRODUCTION In this case—the first of its kind—the government prosecuted Jesse Lit-vak, a bond trader, for securities fraud based on statements he made during negotiations with professional investment fund managers. This case has ap-peared before the Court once before. See United States v. Litvak, 808 F.3d 160 (2d Cir. 2015). As was true in the first trial and appeal, this case continues to turn primarily on a single element of liability: specifically, whether misrep-resentations made during negotiations that did not affect the value of the se-curity transacted were material for purposes of securities fraud. At the initial trial, the district court prevented the defense from present-ing expert testimony central to the materiality issue. The jury convicted Mr. Litvak on all fifteen counts, and the court sentenced him to 24 months of im-prisonment. After the district court denied his motion, this Court granted Mr. Litvak continued release pending appeal. The Court later reversed the con-victions on five of the counts and ordered a new trial on the remaining counts 1 If this motion cannot be decided before September 12, 2017, the date set for Mr. Litvak’s surrender, see A247, Mr. Litvak respectfully requests that the Court temporarily stay the surrender date pending its decision on the motion. (1) in light of the erroneous evidentiary rulings that had crippled Mr. Litvak’s materiality defense. At the retrial, the government advanced the same flawed theory of ma-teriality as it did at the initial trial. The jury acquitted on nine of the remaining ten counts, convicting only on one count concerning a single trade. In that transaction, the investment fund manager told Mr. Litvak at the outset the price he was willing to pay for the bond. In the course of negotiations, Mr. Litvak concededly misstated the price his firm paid to purchase the security. Despite that misstatement, the manager bought the bond he wanted at the price he had previously said he was willing to pay. The primary evidence that distinguished this count from the nine acquitted counts was testimony from the fund manager that he (incorrectly) believed that Mr. Litvak was acting as his agent. Remarkably, although Mr. Litvak was convicted only on this one count, the district court again sentenced him to 24 months of imprisonment— and again denied his motion for release pending appeal. This Court should again grant Mr. Litvak continued release pending ap-peal. Throughout this protracted proceeding, the government has failed to articulate a valid theory of materiality regarding Mr. Litvak’s statements. At the retrial, the government failed to present sufficient evidence of materiality with respect to the single trade underlying the sole count of conviction. And the district court again made erroneous evidentiary rulings bearing on the lack 2 of materiality, to the detriment of the defense. Each of those issues raises a substantial question likely to result in reversal or a new trial. Because Mr. Litvak’s eligibility for release is otherwise undisputed, and because Mr. Litvak would serve much if not all of his sentence before this appeal is decided, the Court should grant Mr. Litvak continued release pending its review of his con-viction. STATEMENT The government initially charged Mr. Litvak with eleven counts of secu-rities fraud, see 15 U.S.C. §§ 78j(b), 78ff; one count of fraud against the Trou-bled Asset Relief Program (TARP), see 18 U.S.C. § 1031; and four counts of making false statements on a matter within the jurisdiction of the government, see 18 U.S.C. § 1001.2 A1-21. Specifically, the government alleged that, while transacting residential mortgage-based securities (RMBS) as a bond trader at Jefferies and Co., Mr. Litvak lied to the investment professionals with whom he traded about the portion of the transaction price that would represent a profit to Jefferies. There was no allegation that he misrepresented the nature or quality of the securities transacted. Because Mr. Litvak conceded that he had misstated the composition of the purchase price, this case has always hinged on whether those statements were material. 2 The government based the Section 1001 and Section 1031 counts on the fact that the counterparties for some of the charged trades managed funds in which the Department of the Treasury invested as part of TARP. 3 At the initial trial, Mr. Litvak was convicted of all fifteen counts that went to the jury. A58-60. In an 84-page decision, however, this Court reversed the convictions on the false-statements and TARP-fraud counts, vacated the convictions on the securities-fraud counts, and remanded for a new trial. 808 F.3d 160. Regarding the false-statements and TARP-fraud counts, the Court held that, while the misrepresentations "may have been relevant to the Treas-ury, and even contrary to its interest in maximizing the [funds’] returns," that was not enough to prove that the misstatements "were reasonably capable of influencing a decision of the Treasury," as was necessary to prove materiality. Id. at 172, 174. Regarding the securities-fraud counts, this Court recognized that mate-riality was the "central issue in the case." 808 F.3d at 182. The Court distin-guished its earlier decision in Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir. 1996), in which it had held misstatements concerning hidden com-missions immaterial as a matter of law. 808 F.3d at 176-177. But the Court acknowledged that a jury could reasonably determine that "misrepresenta-tions by a dealer as to the price paid for certain RMBS would be immaterial to a counterparty that relies not on a'market’ price or the price at which prior trades took place, but instead on its own sophisticated valuation methods and computer model." Id. at 183. 4 This Court proceeded to vacate the convictions on the securities-fraud counts and to remand for a new trial on those counts. 808 F.3d at 175. The Court held that the district court had abused its discretion by excluding expert testimony that would have been "highly probative" of materiality. Id. at 182. That included testimony about the "process by which investment managers value RMBS"; the "likely impact on the final purchase price of a broker’s state-ments made to a counterparty during the course of negotiating a RMBS trans-action"; the effect of "minor price variances" on sophisticated investors; the "arm’s-length nature of the relationship between a broker-dealer and counter-party"; and the "significance of the agent/principal distinction in the RMBS context." Id. at 182, 185, 186, 187 (internal quotation marks and citations omit-ted). Without that testimony, the Court concluded, Mr. Litvak had little op-portunity to show that his misstatements were immaterial to a reasonable in-vestor—even if the alleged victims deemed them important in hindsight. Id. at 184. The Court also held that the district court had abused its discretion by excluding evidence of "widespread use of similar negotiation tactics [by other employees] at Jefferies[,] which would have shown that others at Jefferies en-gaged in the same conduct and that it was approved by supervisors and by Jefferies’ compliance department." 808 F.3d at 188 (internal quotation marks 5 and citation omitted). As the Court recognized, that evidence was relevant to proving Mr. Litvak’s good faith and lack of fraudulent intent. Id. at 190. A second trial followed. Testifying as the government’s witnesses, the counterparties acknowledged that Mr. Litvak’s statements did not concern the value of the securities. See, e.g., A111 (Canter) (confirming that "[n]othing about the investment performance of these three bonds changed at all given what [the fund manager] later learned about Jefferies’ actual acquisition cost"); A212 (Wollman) (agreeing that "Mr. Litvak didn’t misrepresent any-thing about the... fundamentals of the product"). After deliberating for two weeks, the jury acquitted Mr. Litvak of nine of the ten remaining counts. See A234-235. The jury convicted only on one count, Count 4. Just like the acquitted counts, Count 4 involved a RMBS trade between Mr. Litvak and an investment fund manager, Brian Norris, who was acting on behalf of Invesco. See A17. Mr. Norris testified that, before Invesco engages in a trade, a "credit research team" aims to "determine the actual value of a bond at any particular price" and provides a report to the fund man-ager showing bond price points and corresponding yields. See A144-145, A179-180. Armed with that information, Mr. Norris approached Mr. Litvak to pur-chase a specific bond identified by Invesco, which was up for sale that day in an auction. See A145. Mr. Norris told Mr. Litvak at the outset that "[Invesco] 6 can bid 79-24" for that bond. Id.3 Mr. Norris assumed that Invesco would pay Jefferies a mark-up of 6 ticks on top of the bid, for a total price of 79-30. See A163-164. That was the "price that [Invesco was] willing to pay for this par-ticular bond" based on its own "internal analytics," A145, A162-163—though Mr. Norris told Mr. Litvak Invesco could pay even more, stating that he had "got some room, too," A146. Mr. Litvak responded that he won the auction after "bid[ding] [Norris’s] level," even though Jefferies had in fact acquired the bond for 79-16. A147, A149. Mr. Norris agreed to pay Jefferies 79-30 and received the specific bond he sought to purchase. See A149. At trial, Mr. Nor-ris conceded that, if Mr. Litvak had bid 79-24 as requested, Mr. Norris would still have paid the price he had expected to pay all along—79-30. See A164. The total price Invesco paid reflected its independent valuation, as was the case in all the trades on which the jury acquitted. The primary factor that set Count 4 apart was Mr. Norris’s erroneous belief that Mr. Litvak was acting as Invesco’s agent in the trade. See A146. Although Mr. Litvak was convicted on only one count, the district court sentenced him to the same period of imprisonment as in the initial trial. See A70, A241. In addition to the alleged loss stemming from Count 4, the court considered the nine transactions underlying the acquitted counts and 66 other, 3 Bond traders measure prices in increments known as "ticks." Each tick equals 1/32 of a dollar (based on a $100 face value). For example, the "30" in a price of 79-30 refers to 30 ticks, meaning that the price is $79.9375. 7 uncharged transactions. See A237-238. The district court’s "view of the evi-dence" was that "Mr. Litvak committed the nine crimes [for which he was ac-quitted] and that the other conduct [for which he was never charged]... [was] also criminal." A240. The court denied Mr. Litvak’s motion for continued re-lease pending appeal, finding no error in any of its prior rulings. See A256-265. Mr. Litvak filed a timely notice of appeal on May 3, 2017. See A245-246. ARGUMENT A court shall order the release of a convicted defendant if it finds (1) "by clear and convincing evidence that the person is not likely to flee or pose a danger to the safety of any other person or the community if released" and (2) "that the appeal is not for the purpose of delay and raises a substantial question of law or fact" that is "likely to result" in reversal or a new trial. 18 U.S.C. § 3143(b). Once the defendant makes the requisite showing, "the stat-ute establishes a right to liberty that is not simply discretionary but manda-tory." United States v. Abuhamra, 389 F.3d 309, 319 (2d Cir. 2004). This Court reviews de novo a district court’s determination as to the ex-istence of a substantial question for appeal. See United States v. English, 629 F.3d 311, 319-320 (2d Cir. 2011). Because it is undisputed that Mr. Litvak poses no risk of flight or danger to the community; his appeal raises substan-tial questions likely to result in reversal or a new trial; and he would otherwise 8 serve a substantial portion (if not all) of his sentence before his appeal is de-cided, the Court should once again grant Mr. Litvak continued release pending its review. I. IT IS UNDISPUTED THAT MR. LITVAK POSES NO RISK OF FLIGHT OR DANGER TO THE COMMUNITY The government does not dispute that Mr. Litvak satisfies the first re-quirement for release pending appeal. See A248-254. The district court read-ily agreed, noting that Mr. Litvak "has been free on bail for the last four years, and there has been no indication that [he] was likely or intended to flee, or that he posed any risk to others in his community." A258. II. MR. LITVAK’S APPEAL RAISES SUBSTANTIAL QUESTIONS LIKELY TO RESULT IN REVERSAL OR A NEW TRIAL A. The Appeal Raises Substantial Questions A substantial question is "one of more substance than would be neces-sary to a finding that it was not frivolous," a "close question" or one "that very well could be decided the other way." United States v. Randell, 761 F.2d 122, 125 (2d Cir. 1985) (internal quotation marks and citation omitted). This appeal raises substantial questions concerning the element of materiality and eviden-tiary issues relating to that element. 1. Materiality The district court erred in holding that the evidence was sufficient to prove that the misrepresentation at issue in this case was material. The only 9 misstatements alleged here related to the portion of the transaction price that represented Jefferies’ profit in the RMBS trades. Those statements were rel-evant only to negotiations over price; they had no effect on the valuation of the bonds. Such misstatements are immaterial to the reasonable investor where, as here, the counterparty determined in advance the price he was willing to pay for the bond and ended up paying that price, regardless of the misstate-ment. And even if such misstatements could be material, the government pre-sented insufficient evidence of materiality to support conviction on the partic-ular count at issue, Count 4. In order to establish materiality, the government must prove beyond a reasonable doubt "a substantial likelihood that a reasonable investor would find the omission or misrepresentation important in making an investment de-cision." United States v. Vilar, 729 F.3d 62, 89 (2d Cir. 2013). A misstatement is "important" if it would have "significantly altered the total mix of infor-mation made available" at the time of the transaction. Basic Inc. v. Levinson, 485 U.S. 224, 232 (1988) (internal quotation marks and citation omitted). As the Supreme Court recently clarified, "[u]nder any understanding of the con-cept, materiality look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation." Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002 (2016) (internal quotation marks and citation omitted). 10 a. The government presented insufficient evidence of materiality. — Assuming, arguendo, that misstatements such as Mr. Litvak’s could be mate-rial in some circumstances, the government presented insufficient evidence of materiality in the trade underlying Count 4, and the district court erred in holding otherwise. In that trade, Mr. Norris asked Mr. Litvak to purchase a specific bond and told Mr. Litvak the price that Invesco was willing to pay. See A145. As Mr. Norris explained at trial, the fund’s main goal was to acquire long-term investments it had independently determined to be good value using its internal analytics. See A171-172. To that end, Mr. Norris disclosed In-vesco’s reservation price of 79-24 (and noted that he had "some room" to pay even more). A146-147. Mr. Norris further assumed that Invesco would pay Jefferies a mark-up of 6 ticks on top of the bid of 79-24, for a total price of 79-30, A163-164, which was "comfortably within [Invesco’s] yield target" for that particular bond. A169. Mr. Norris thus testified that, if Mr. Litvak had actually submitted the 79-24 bid as he said he did, Invesco would have paid 79-30 for the bond. A164. In the end, Invesco bought the exact bond it wanted for the exact price it had previously determined to pay. Mr. Litvak’s misstatement that he had "bid [Mr. Norris’s] level" had no bearing on Invesco’s decision to transact at that price. A147. In other words, the Count 4 evidence fell well short of proving 11 securities fraud, because Mr. Norris effectively conceded that the misstate-ment was immaterial. See Universal Health Services, 136 S. Ct. at 2002. In that respect, Count 4 was indistinguishable from the nine acquitted counts. Taken together, the transactions at issue here show why a reasonable RMBS investor would consider misstatements like Mr. Litvak’s to be immate-rial. All of the transactions involved two sophisticated parties, negotiating at arm’s length over the total price, each trying to maximize its profit. See A95-97 (Canter); A130 (Corso). Before approaching Jefferies about a particular bond, the counterparty fund had independently assessed the bond’s value us-ing complex quantitative modeling, and determined a price range for buying the RMBS. See A90-93, A101-106 (Canter); A122-123, A126-127 (Corso). Act-ing on that information, the fund manager paid a total price that reflected the bond’s predetermined value. A107-112 (Canter); A128, A131-134 (Corso); A213-214, A217-218 (Wollman). Jefferies’ acquisition cost had no bearing on the valuation or whether the bond made a good long-term investment. That determination depended on the relationship between the bond’s total price and its anticipated returns, which in turn were based on a host of factors, including the characteristics of the mortgage debt underlying the bond. See A92-93 (Canter); A144-145, A179, A182-186 (Norris). As with the acquitted counts, the government tried to prove materiality on Count 4 by presenting the fund manager’s conclusory testimony that, in 12 hindsight, the misstatements were subjectively "important" to him. See A149-150. That is plainly insufficient, however, in light of Mr. Norris’s admission that Invesco bought the bond it wanted at the price the fund had deemed it to be worth. What matters for materiality purposes is not a particular fund man-ager’s after-the-fact perception of the misrepresentations, but how a reasona-ble investor in the same circumstances would have viewed them. See 808 F.3d at 184. In this case, Mr. Norris’s perception was tainted by a fundamental mis-understanding. He testified that he believed that Mr. Litvak was Invesco’s agent in the transaction and was therefore obligated to act in the fund’s best interest. See A146. According to Mr. Norris, that is why he believed infor-mation volunteered by a trader during negotiations—information that he and other fund managers typically treated with caution. See A112-118 (Canter); A136-137 (Lemin); A192 (Norris); A214-216 (Wollman). As a matter of law, however, it is undisputed that Mr. Litvak was acting as a principal whose duty was to secure the largest profit for Jefferies. See A229. Unlike Mr. Norris, other fund managers knew they were dealing with Mr. Litvak as a principal. See A95-97 (Canter); A130 (Corso). Mr. Norris’s belief was therefore not that of a reasonable investor. Ultimately, the govern-ment failed to show either that a reasonable investor in Mr. Norris’s situation 13 would have made the same mistake or that a reasonable investor who under-stood the relationship would have found the misrepresentations material. b. The misstatements were immaterial as a matter of law. — More fundamentally, Mr. Litvak’s misstatements were immaterial as a matter of law and therefore could not form the basis for a securities-fraud conviction. In the previous appeal in this case, the Court held that a rational jury could poten-tially find the misstatements material based on the evidence presented at the first trial. See 808 F.3d at 175-176. Mr. Litvak respectfully submits that the Court’s conclusion was incorrect and, in any event, the Court’s reasoning does not squarely apply to the second trial, where the counterparty for the only count of conviction determined (and disclosed at the outset) the price he was willing to pay for the bond and ultimately paid precisely that price, regardless of the misstatement. In assessing materiality, this Court has repeatedly defined a material fact as one capable of affecting the value of the security being transacted. See Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 888 (2d Cir. 1972) (ap-proving of a jury instruction defining materiality in terms of the "effect [on] the value of the security" (internal quotation marks omitted)); accord SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968) (en banc); List v. Fashion Park, Inc., 340 F.2d 457, 462 (2d Cir. 1965). For example, in Fein-14 man, this Court held that misstatements that were relevant only to negotia-tions and not to the security’s value were immaterial as a matter of law. See 84 F.3d at 541. Plaintiffs in that case alleged that brokerage firms charged them transaction fees that "far exceed[ed] the cost to the firms... and instead represent[ed] hidden, fixed commissions." Id. at 540. By concealing the commissions, the firms "prevent[ed] customers from negotiating the fees." Id. Holding that those misstatements were immaterial as a matter of law, the Court clarified that cases holding to the contrary had involved misrepresenta-tions that "did, or at least had the potential to, cause the plaintiff financial harm" by affecting the value of the security transacted. Id. at 541. In the previous appeal, the Court drew certain distinctions between Feinman and Mr. Litvak’s case, but those distinctions were without a differ-ence. While the brokers in Feinman misrepresented the true costs of han-dling trades, Mr. Litvak "was untruthful about the portion of each transac-tion’s total cost that would be used to purchase securities and the portion that would be retained by Jefferies." 808 F.3d at 176. Moreover, the additional profits per transaction were smaller in Feinman, and the Court believed that "competition among the firms" in pricing their services could address any problem from misrepresentations. Id. at 176-177 (internal quotation marks omitted). But both the brokers in Feinman and Mr. Litvak claimed that a 15 certain portion of the total price—the fees and the bond purchase price, re-spectively—represented their transaction cost. Because the actual cost was lower, they understated the profit margin earned by the brokers and by Jef-feries. In both cases, however, the investor knew the total price for the secu-rity and agreed to pay that price. And just as the investors in Feinman could choose among multiple brokers, Mr. Norris did not have to buy the bond from Jefferies. If Invesco thought it could get a lower price from another broker, it was free to trade with that broker instead. In substance, therefore, Feinman’s reasoning—namely, that misstating a component of the total transaction price relevant only to negotiations is im-material to a reasonable investor—applies with full force here. See Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 613 (7th Cir. 2012) (relying on Feinman in holding that "any alleged misrepresentation... that the stated [fee] was tied to actual costs was not material to investors’ decisions to buy or sell securities"). Other courts have agreed with that principle. For example, as the Seventh Circuit recently held, "[d]eception about negotiating positions—about reserve prices and other terms and their relative im-portance—should not be considered material," because "negotiating parties... do not expect complete candor about negotiating positions." United States v. Weimert, 819 F.3d 351, 358 (7th Cir. 2016). 16 The government’s theory of materiality here was that counterparties would have negotiated for a lower price if they had known Jefferies’ actual profit margin. But that is not the legally correct inquiry. Materiality does not turn on information that investors would simply like to know. Otherwise, all kinds of sales talk and puffery uttered during negotiations could be material simply because one party might have bargained harder if it had known the truth. Sales talk and puffery, however, are classic examples of immaterial statements on which a reasonable investor would not rely. See, e.g., San Leandro Emergency Medical Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 811 (2d Cir. 1996). Likewise, sophisticated RMBS investors, knowing that traders are out to get the best deal and have access to infor-mation the buyers do not, are naturally skeptical of statements made by coun-terparties in arm’s-length negotiations. See p. 13, supra. The district court erred by accepting the government’s low baseline for materiality, and its deci-sion threatens to extend the securities-fraud laws into novel contexts. At a minimum, a misstatement about the broker-dealer’s profit margin cannot be material where, as here, the counterparty has determined, and dis-closed, the price he is willing to pay for the bond before the negotiation begins and then ultimately pays precisely that price for the bond, despite the inter-vening misstatement. Whether as a matter of law or as specific to the evidence 17 supporting Count 4, the materiality issue presents a substantial question for appeal justifying Mr. Litvak’s continued release. 2. Evidentiary Rulings The district court made two erroneous evidentiary rulings that directly affected the jury’s determination of materiality. Those rulings, too, present substantial questions for appeal. a. The district court erroneously admitted'agency’ testimony. — The defense sought to exclude testimony that Mr. Litvak served as the coun-terparties’ agent. The government conceded that the parties traded as prin-cipals. A76-77. The district court agreed that Mr. Litvak was not "actually an agent of the counterparties" during the trades and instructed the jury accord-ingly. A77; A229. The court nevertheless ruled that investment fund manag-ers could testify that they perceived Mr. Litvak to be their agent. A77. Sub-sequently, two fund managers, Mr. Norris and Mr. Joel Wollman, testified that they believed Mr. Litvak was acting as their agent in trading with them. A146 (Norris); A208-209 (Wollman). The district court’s paper-thin distinction between reality and percep-tion was almost surely lost on the jury. The admitted testimony—which both parties agree was incorrect in its description of the broker-investor relation-ship—likely created the very danger this Court previously recognized with re-spect to the principal/agent distinction: namely, that the jury would be misled 18 into thinking that these were not arm’s-length transactions and that Mr. Lit-vak’s statements would have "great import to a reasonable investor if coming from the investor’s agent." 808 F.3d at 187 & n.32. Attempting to capitalize on that risk in its closing argument, the government referred to a supposed "relationship of trust" between Mr. Litvak and the fund managers. See A227. Even if the jury were able to distinguish between the reality of the rela-tionship and the counterparty’s mere perception of its relationship with Mr. Litvak, the counterparty’s perception is irrelevant. A fund manager’s misun-derstanding that Mr. Litvak was his agent does not tend to show that a rea-sonable investor would have been similarly confused. The "agency" testimony risked drawing the jury’s attention away from the objective inquiry and to-wards Mr. Norris’s subjective expectation that Mr. Litvak would act in his best interest. Jurors may well have walked into deliberations thinking that Mr. Litvak’s statements, coming from a perceived agent, affected Mr. Norris’s de-cisionmaking, instead of considering whether the same statements would have influenced a reasonable investor. That may explain—indeed, it is the most plausible explanation—why the jury convicted on Count 4 and acquitted on nine other substantially similar counts. The district court’s admission of "agency" testimony was a clear abuse of discretion and presents a substantial question for appeal. 19 b. The district court erroneously excluded evidence of industry practice. — The defense sought to introduce evidence of widespread conduct identical to Mr. Litvak’s at broker-dealers other than Jefferies. The district court refused to admit that evidence unless it revealed that investors like the ones in this case were aware that those traders were making misrepresenta-tions. See A83-86. The court excluded any evidence that did not directly re-flect the investors’ knowledge as irrelevant and as "confusing, misleading, and prejudicial under Rule 403." A85. In the court’s view, "this case is about Jesse Litvak" and "[t]here is little probative value to evidence that tends to show that the whole RMBS industry engaged in the kind of conduct for which Litvak has been indicted." A85. Respectfully, the district court’s reasoning is incorrect. Evidence need only have an "incremental effect" to be relevant. United States v. Certified Environmental Services, Inc., 753 F.3d 72, 90 (2d Cir. 2014) (internal quota-tion marks omitted). Showing that the type of misrepresentation at issue here was pervasive in the RMBS industry—in which the counterparties were so-phisticated players—makes it more likely that a reasonable investor would have known about the practice and discounted such representations by trad-ers. This evidence served the same purpose as a defense expert’s opinion that "a sell-side bond trader’s statements, such as Litvak’s, would be widely con-sidered within the industry as'biased’ " and "unworthy of consideration in 20 trading decisions." 808 F.3d at 179, 182 (emphasis and internal quotation marks omitted). In its earlier opinion, this Court concluded that such expert testimony about the misstatements’ "likely impact on the final purchase price" was relevant to the jury’s view of materiality and had been erroneously ex-cluded from the first trial. Id. at 182. The district court’s exclusion of the evidence of industry practice, in disregard of this Court’s earlier guidance, raises a substantial question for appeal. B. A Favorable Ruling Would Lead To Reversal Or A New Trial To warrant release pending appeal, a substantial question must be one that, if it "is determined favorably to defendant on appeal, that decision is likely to result in reversal or an order for a new trial on all counts on which imprisonment has been imposed." Randell, 761 F.2d at 125 (internal quotation marks and citation omitted). A holding that Mr. Litvak’s misrepresentations were immaterial as a matter of law, or alternatively, that the evidence was insufficient to prove materiality on Count 4 would compel reversal of Mr. Lit-vak’s conviction. And because both flawed evidentiary rulings relate directly to materiality, a determination that the district court abused its discretion in making either ruling would warrant a new trial on Count 4. * * * * * Unless this Court orders his continued release, Mr. Litvak will have served much, if not all, of his sentence before his appeal can be resolved. See 21 Administrative Office of the United States Courts, Judicial Business of the United States Courts, tbl. B-4A (2016) (noting that the median time from no-tice of appeal to final disposition for criminal cases in this Court is 13½ months). Given the length of the sentence, incarcerating Mr. Litvak "immedi-ately upon conviction could substantially diminish the benefit he would ordi-narily receive from an appeal." United States v. Garcia, 340 F.3d 1013, 1019 (9th Cir. 2003); see also United States v. Litvak, No. 14-2902, Dkt. No. 41 (2d Cir. Oct. 3, 2014) (granting the motion for release pending appeal when the district court previously imposed a 24-month sentence in this case); Gupta v. United States, No. 12-4448, Dkt. No. 47 (2d Cir. Dec. 6, 2012) (granting a mo-tion for release pending appeal where the district court imposed a 24-month sentence). As in the previous appeal, this Court should have an opportunity to consider the substantial questions raised by this case before Mr. Litvak is sent to prison for conduct that may not have constituted a crime. 22 CONCLUSION The motion for release pending appeal should be granted. Respectfully submitted,/s/Kannon K. Shanmugam KANNON K. SHANMUGAM DANE H. BUTSWINKAS ALLISON JONES RUSHING MENG JIA YANG* WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 JUNE 30, 2017 * Admitted in California and practicing law in the District of Columbia pending application for admission to the D.C. Bar under the supervision of bar members pursuant to D.C. Court of Appeals Rule 49(c)(8). 23 CERTIFICATE OF COMPLIANCE WITH TYPEFACE AND WORD-COUNT LIMITATIONS I, Kannon K. Shanmugam, counsel for appellant and a member of the Bar of this Court, certify, pursuant to Federal Rule of Appellate Procedure 27(d), that the attached Motion of Defendant-Appellant is proportionately spaced, has a typeface of 14 points or more, and contains 5,135 words./s/Kannon K. Shanmugam KANNON K. SHANMUGAM JUNE 30, 2017 Addendum TABLE OF CONTENTS Page 1. Indictment, January 25, 2013............................................................................. A1 2. Expert Disclosure, December 24, 2013........................................................... A22 3. Pretrial Hearing Transcript, February 6, 2014 (excerpts)............................... A42 4. Trial Transcript, February 26, 2014 (excerpts)............................................... A51 5. Trial Transcript, March 7, 2014 (excerpts)...................................................... A55 6. Sentencing Hearing Transcript, July 23, 2014 (excerpts)............................... A63 7. Judgment, July 25, 2014.................................................................................. A70 8. Order Granting Bail Motion, October 3, 2014................................................ A74 9. Ruling Regarding Motions in Limine, June 28, 2016 (excerpts).................... A75 10. Trial Transcript (Canter), January 5-6, 2017 (excerpts).................................. A89 11. Trial Transcript (Corso), January 9, 2017 (excerpts).................................... A119 12. Trial Transcript (Lemin), January 10, 2017 (excerpts)................................. A135 13. Trial Transcript (Norris), January 10, 2017 (excerpts).................................. A138 14. Trial Transcript (Wollman), January 10, 2017 (excerpts)............................. A207 15. Trial Transcript, January 13, 2017 (excerpts)................................................ A225 16. Jury Charge, January 13, 2017 (excerpts)..................................................... A228 17. Trial Transcript, January 27, 2017 (excerpts)................................................ A233 18. Sentencing Hearing Transcript, April 26, 2017 (excerpts)............................ A236 19. Judgment, May 2, 2017................................................................................. A241 (i) 20. Notice of Appeal, May 3, 2017..................................................................... A245 21. Self-Surrender Letter, May 19, 2017............................................................. A247 22. Government’s Opposition to Mr. Litvak’s Motion for Release Pending Appeal, May 19, 2017..................................... A248 23. Order Denying Motion for Release Pending Appeal, June 6, 2017.............. A256 (ii) UNITED STATESDISTRICT COURT DISTRICTOF CONNECTICUJ.,, FILiD ruRY)h#:&r zs Pn 't ts GRAND LTNITEDSTATESOF AMERICA.fi'fu#tfidp:8{e{-(--l v. VIOLATIONS: 15U.S.C.$$ 78j(b),78ff [Securities Fraud] JESSEC. LITVAK 18U.S.C.$ 1031[TARPFlaud] 18U.S.C.$ 1001[FalseStatements to the Government] INDICTME]IT The GrandJury chargesthat at all timesrelevantto this Indictqent: The Defendant 1. DefendantJESSEC. LITVAK, a licensedsecuritiesbroker,residedin the Stateof New York andwasa seniortraderandmanagingdirectorat Jefferies& Co.,Inc. (referredto hefeinas"Jefferies"). LITVAK washiredby Jefferieson or aboutApril 14,2008andwas tEnainatedon or aboutDecember21,2011. 2. Jefferiesis a broker-dealer registeredwith the SecuritiesandExchange Commission("SEC") anda FinancialIndustryRegulatoryAulhoglty("FINRA") memberfirm. Jefferiesis a globalsecuritiesandinvestmentbankingfirm, with headquarters in New York. Jefferiesalsohasa tradingfloor in Stamford,ConnecticutwhereLITVAK andothermembersof its MortgageandAsset-BackedSecuritiesTradinggroupworked. 3. LITVAK specializedin tradingcertaintypesof residentialmortgage-backed securities("RMBS"), which aresecuritieswithin the meaningof the federalsecuritieslaws. The Victim-Customers 4. LITVAK's victims areknown by the GrandJury to havebeencertainof Jefferies' customers. A1 5. LITVAK's victim-customers includedfrrndsestablished by the United States Departmentof Treasury'sLegacySecuritiesPublic-PrivateInvestmentprogram(..pplp"). pplp was,andis, a part of the United StatesGovernment'sTroubledAssetReliefprogram(,.TARp'), the Governmentbailoutplan createdin 2009in responseto the financialcrisis. 6. In March 2009,Treasuryannounced the creationof PPIP,the purposeof which wasto purchasecertaintroubledreal estate-related securities,includingtypesof RMBS, f.rom financialinstitutionsto allow thosefinancialinstitutionsto freeup capitalandextendgew credit. 7. Beginningin late 2009,the Governmentusedmorethan$20 billion of bailout moneyfrom TARP to fund Public-PrivateInvestmentFunds("PPIFs"),which woqld purchase the troubledsecurities.The Governmentmatchedeverydollar of privateinvestmentin a ppIF with onedollar of equityandtwo dollarsof debt. Thus,75o/o of eachPPIF'smoneyconsistsof taxpayerfundsdisbursedby the Govemmentaspart of its bailoutplanthroughTARP. 8. EachPPIFwasestablished andmanagedby a LegacySecuritiespplp fund manager(a "PPIF Manager")selectedby the Deparhnentof Treasury.EachPPIFManager owedfiduciarydutiesto the investorsthat contributedmoneyto its PPIF,which wasprimarily the Government. 9. EachPPIFreceivedbetweenapproximately $1.4billion to $3.7billion of bailout money. 10. Underthe rulesof PPIP,a PPIFcould buy or sell only certaintypesof RMBS, includingthe typesof RMBS that LITVAK specializedin. 11. The following six PPIFsareknown by the GrandJuryto havebeenLITVAK's victim-customers (eacha "TARP-FundedVictim'):-2-A2 a. AG GECCPPIFMasterFund,L.P. (PPIFManager:Angelo,Gordon& Co.,LP); b-AllianceBernstein LegacySecuritiesMasterFund,L.P. (PPIFManager: AllianceBernstein, LP); c. BlackRockPPIF,L.p. (ppIF Manager:BlackRock,Inc.); d-InvescoLegacySecuritiesMasterFund,L.P. (PPIFManager:Invesco Ltd.); e. RLJ WestemAssetPublic/PrivateMasterFund,L.P. (PPIFManager:RLJ WesternAssetManagement, LLC); and f. WellingtonManagement LegacySecuritiesPPIFMasterFund,LP (PpIF Manager:WellingtonManagement Company,LLp). 12. In addition,the following non-PPIPentitiesor their affiliates,or fundsor entities managedby or affiliatedwith them,areknownby the GrandJuryto alsohavebeenLITVAK'S victim-customers (eacha "Privately-Funded Victim',): a. DE Shaw& Co.: b. DW InvestmentManagement LP; c. EBF & Associates: d. MagnetarCapital; e. MFA Financial,Inc.; f. Monarch Alternative Capital; o tf,' Oak Hill Capital; h. Pine River Capital Management; i. Putnam Investments:-3-A3 J. QVT Financial; k. Red Top Capital lnvestments; l. SorosFund ManagementLLC; m. Third Point LLC; and n. York CapitalManagement, LLC. OthqrRelevantPersons 13. Supervisor#1 is knownby the GrandJuryto havebeenoneof LITVAK's supervisors at Jefferies. RMBS Tradine 14. RMBS arebondscomprisedof largepoolsof residentialmortgagesandhome equityloans. The RMBS ownersreceivepaymentson a monthlybasis-based on repayments from the homeowners that took out the mortgagesor loans,until the homeowners repaytheir debt,refinanceor default. Unlike stocks,RMBS bondsarenot publicly tradedon an exchange, suchastheNew York StockExchangeor NASDAQ, andpricing informationis not publicly-available.Instead,buyersandsellersofbonds usebroker-dealers, like Jefferies,to execute individuallynegotiatedtransactions. 15. Theunit at Jefferiesthat handlesRMBS tradingis known asthe Mortgageand Asset-Backed Securitiesgroup,which employstradersandsalespeople.In general,a trader,like LITVAK, specializes in particularkinds of RMBS or "sectors,"while a salesperson is responsible for certaincustomersor "accounts." 16. RMBS bondstypically aresoldin threeways: from a broker-dealer's inventory,in which the broker-dealer like Jefferies is selling a bond that it has owned for a period of time;-4-A4 b. asan order,in which the sellercommissionsthe broker-dealer to seeka buyer,or the buyercommissions the broker-dealer to seeka seller,for a particularbond;or c. aspartof a "bid list" or'.BWIC" ("bidswantedin competition"), in which the sellercirculatesa list of specificbondsit is interestedin sellingsothat the broker-dealer may seeka potentialbuyerwilling to negotiatetermsfor the trade. 17. Ordersandbid list tradesareconsidered"riskless"tradesfor broker-dealers like Jefferiesbecausein thosetransactions broker-dealers merelyact asmatch-makers, servingasa conduitfor a bondto passfrom a sellerto a buyer. 18. In ordersandbid list trades,thebuyerandthe sellerdo not know eachother's identity,but communicateexclusivelythroughthe broker-dealer's tradersandsalespeople. 19. Buyersattemptto purchasebondsat the lowestprice availablein the market,and sellershy to sell bondsat the highestprice available.This is called"bestexecution."Wherea buyerdoesnot obtainbestexecution,its investrnentwill be lessprofitablethanit would have beenotherwise. 20. profit, if any,on a setof tradesis the differenceor "spread" A broker-dealer's betweenthe price it paysthe sellerandthe price it chargesthe buyer. In the bondindustry, pricesaremeasuredin l/32s of a dollar, commonlyreferredto as"ticks." For instance,if a broker'dealerbuysa bondfor $65.25(meaning$65.25per $100of currentfacevalue),the price as"65 dollarsand 8 ticks," "65 and8" or "65-8." If the broker-dealer would be expressed then sellsthatbondfor $65.50(rneaning $65.50per $100of currentfacevalue),thepricewouldbe profit on as"65 dollarsand 16ticks,""65 and 16,"or "65-16." Thebroker-dealer's expressed this setof tradeswould be $0.25per $100of currentfacevalue,or 8 ticks.-5-A5 21. A customercancompensate a broker-dealerfor a tradein oneof two ways,either on an'oall-in"or an "on-top"basis. a. In an "all-in" trade,the buyeragreesto a price withoutreferenceto the pricethe broker-dealer paid to the seller;the spreadbetweenthe amountpaid by the buyerand the amountpaid to the selleris the broker-dealer'scompensation. b. In an "on-top" ttade,the buyerandthe broker-dealer agreeon a specific amountthat is addedto the pricethe broker-dealer paid to the seller;in otherwords,the broker-dealer'scompensation is a commissionaddedto the costof the bond. 22. Inventorytradesareusually"all-in" transactions, while bid lists are"on top" trades,andorderscanbe eitherdependingon what the broker-dealer, buyerandsellernegotiate. Jefferies'Codesof Conduct 23. Jefferiesmaintained(i) a Codeof Ethics,(ii) ComplianceandSupervisory PoliciesandProcedures for Mortgage& Asset-BackedSecuritiesSalesandTradingPersonnel, and(iiD Complianceand SupervisoryPoliciesandProcedures for FixedlncomeSalesand TradingPersonnel. 24. In the sectionentitled"Fair Dealing,"Jefferies'Codeof Ethicsstatedthat "ft]aking unfair advantageof anyonethroughmanipulation,concealment, abuseof privileged information,misrepresentation of materialfacts,or any otherunfair dealingpracticeis a violationof the Code." 25-Both the Complianceand SupervisoryPoliciesandProcedures for Mortgage& Asset-Backed SecuritiesSalesandTradingPersonnelandthe ComplianceandSupervisory PoliciesandProcedures for Fixed IncomeSalesandTradingPersonnelincludethe following statement:"Tradersshouldbearin mind that the anti-fraudprovisionsof the ExchangeAct and 6-A6 the bestexecutionprovisionsof FINRA-NASDrulescontinueto applyto all securities transactions, regardlessof the customer'sstatus,andthat tradingthat is suggestive of abusewill not bepermitted." 26. Beforeandduringthe actsallegedin this Indictment,LITVAK completed acknowledgement formscertiffing that he had "read,understood, compliedandagree[d]to complywith" thesepolicies. COUNTSONE throughELEVEN SecuritiesFraud 1su.s.c.$$78j(b), 78ff The SchemeandArtifice 27. The allegationssetforth in paragraphsI through26 of this Indictmentare reallegedandincorporatedasthoughfully setforth herein. 28. Beginningin approximately2009andcontinuinguntil approximately December 2011,theprecisedatesbeingunknownto the GrandJury,in the District of Connecticutand LITVAK knowingly andwillfully, directly andindirectly,by the useof r.neans elsewhere, and instrumentalities of interstatecommerceandof the mails,in connectionwith thepurchaseand saleof RMBS, would anddid useandemploymanipulativeanddeceptivedevicesand contrivances in violalionof Title 17,Codeof FederalRegulations, Section240.10b-5 by (i) employingdevices,schemesandartificesto defraud,(ii) makinguntruestatements of material factsandomittingto statematerialfactsnecessary to makethe statements madenot misleading in the light of the circumstances underwhich they weremadeand(iii) engagingin acts,practices andcoursesof businesswhich would anddid operateasa fraudanddeceiton purchasers and sellersof suchRMBS.-7-A7 29. As a resultof this scheme,LITVAK causedvictim-customers to sustainlossesof morethan$2,000,000. Purposeof the SchemeandArtifice 30. A purposeof LITVAK's schemewasto enrichJefferiesandhimselfby using materiallyfalseandfraudulentmisrepresentations andomissionsto takesecretandunearned compensation from TARP-FundedVictims andPrivately-Funded Victims on RMBS trades. 31. LITVAK's supervisorsat Jefferies,includingSupervisor#1, established and communicated specificannualprofit goalsfor the MortgageandAsset-Backed Securitiesgroup. As LITVAK knew,his individualtradingrevenuewastrackedby his supervisors andsteadily declinedeachyear-from a profit of morethan$40,000,000 in 2009to a lossof morethan in 2011. $10,000,000 32. LITVAK's schemeincreasedthe profitability of his trades.For example,on or aboutJwrc22,2011,LITVAK corresponded with a traderat anotherbroker-dealer firm abouta RMBS bondbeingofferedvia a bid list. The approximate"on-top" compensation a broker-dealercanexpecton a bid list transactionis betweenfour ticks andeightticks (between4132s and 8/32sper $100of the bond'scurrentfacevalue). In discussingthe pricethat LITVAK hopedto inducea specificTARP-FundedVictim to pay for this bid list bond,LITVAK wrote"f this 4-8/32sht [sic]," to which the othertraderresponded, "that doesntfeedanyone." MannerandMeansof the SchemeandArtifice The mannerandmeansby which LITVAK soughtto accomplishthe scheme included,amongothers,the following: 33. In certain order and bid list transactions:-8-A8 where the buying victim-customer had agreedupon a specified commission "on top" of the price that Jefferieshad negotiatedwith the seller of a RMBS bond, LITVAK would and did misrepresentto the buyer the price Jefferieshad agreedto pay the seller, providing Jefferieswith an extra and uneamedprofit at the buying victim-customer's expense; and b. where the selling victim-customer had agreedupon a specified commission to be deductedfrom the price at which Jefleries had negotiatedto sell a RMBS bond, LITVAK would and did misrepresentto the seller the price the buyer had agreedto pay to Jefferies,providing Jefferieswith an extra and unearnedprofit at the selling victim-customer's expense. 34. In certain salesof bonds from Jefferies' inventory, LITVAK would and did misrepresentto the buying victim-customer that the transactionwas an order or bid list trade requiring "on top" compensation,providing Jefferies with an extra and unearnedprofit at the buying victim-customer's expense. 35. LITVAK perpetratedthis schemeby the use of meansand instrumentsof interstatecofilmerce and the mails in various wavs: a. LITVAK used electronic communicationswith victim-customers, including telephone,email, instant messagesand electronic group "chats," to communicatefalse statementsand misrepresentationswith the intent and purposeof soliciting and negotiating fraudulent RMBS bonds trades: b. LITVAK sent and causedto be sent to victim-customerstrade confirmations or tickets documenting fraudulent transactions;and-9-A9 c. LITVAK causedvictim-customers to wire fundsto Jefferies.andJefferies to wire fundsto victim-customers, to pay for fraudulenttransactions. Misrepresented Prices 36-It waspart of the schemethat LITVAK would defraudvictim-customers buying RMBS bondsin bid list andordertrades,wherethe victim-customers agreedto pay Jefferies specificarnountsof compensation "on top" of the pricespaid to the sellers,by misrepresenting the acquisitioncoststo be higherthanthepricesactuallypaid by Jefferiesto the sellers, fraudulentlyincreasingJefferies'compensation on the transactions. 37. For instance,on or aboutMarch 31,20t0, LITVAK executedhis schemein connectionwith the purchaseby the PPIFManagerfor the AllianceBemsteinLegacySecurities MasterFund,L.P. of two RMBS bonds,HVMLT 2006-102[l{(the "HarborViewBond") and LXS 2007-l5N2A1 (the"LehmanBond"),asfollows: a. On March 31,2010at approximately10:32a.m.,the sellerplacedan order with Jefferiesto sell thesetwo bonds. The seller'sofferingprice at that time was58 on the HarborViewBond and57 on the LehmanBond. b. At approximately10:49a.m.,LITVAK approached the PPIFManagerfor the AllianceBernstein LegacySecuritiesMasterFurd, L.P. aboutbuyingthesebonds,writing "wantedto give you first crackon em." The PPIFManageraskedfor details,andLITVAK responded the seller'sofferingpricesas59 on the HarborViewBond (instead by misrepresenting of the actualofferingprice of 58) and58-16on the LehmanBond (insteadof the actualoffering priceof 57). c. 11'21a.m.and 11:42a.m.,LITVAK andthe PPIF Betweenapproximately Managerspokeby telephone.-10-A10 d' At approximatelyll.42 a.m., LITVAK electronicallycommunicatedwith Supervisor#1 as follows: alliancejust bid me 58 on the 06-I 0s [the Harborview Bond]....i know he will pay us 4132s if i tell him we haveto pay 5g-I 6.... he alsobid us 57-16on thelxs [theLehmanBond]....i um thinkingof tellinghim thatonehasto be 58-8cuz its oneof thebiggerott...... [Ellipsesin original.] e. At approximately #l repliedto LITVAK,,boom! 11:48a.m.,Supervisor tell me whento go in." In this context,"tell me whento go in" meiurswhenSupervisor#l shouldintercedeto buy the bondsfrom the seller. f. At approximately 12.45p.m.,Supervisor #1 electronically communicated with the sellerto confirmJefferieswasbuyingthe HarborViewBond for 57-16andthe Lehman Bondfor 56-16. Supervisor#1 thendescribedthesepricesto LITVAK as"layups." g. At approximately12:45p.m., LITVAK misrepresented the stateof negotiationswith the sellerto the PPIFManager: ok big man....hereis whati got from him...i beathim up pretty good.....butthis is whathe camebackwith: he will sellto me 20mmorig of hvmlt 0610@58-00 but he is beingharderto knockbackon the lxs bonds...saidthathe thinksthatoneis muchcheaperyadayadayada....he told me he wouldsellthemto me at 58-8(30mmorig)......iwouldbe fine working skinnieron these2....but think you aregettinggood levelson these....letme knowwhatyou wantto do big man.... [Ellipsesin original.] h. At approximately I:14p.m.,thePPIFManagerresponded by inquiring whetherthesewould be "all-in" or "on-top" trades,asking"is he [the seller]payingu or am i?" i. At approximately1:21p.m., LITVAK respondedwith additional misrepresentations:-11-A11 all the levelsi put in this fchat]roomarelevelshe wantsto sell to me...i triedto beathim up so i couldgettheselevelsto you.......butthosearethelevelshewantsto sellto me...i will work for whateveryou wanton these... [Ellipsesin original.] j. The PPIFManagerrepliedback"gonnafinish lunchfirst thenre-runit all," andat approximatelyI:24 p.m, LITVAK repeatedandsummarized his earlier misrepresentations: soundsgood.....soto recapthelevelshe is offeringto me: hvmlt06-102ala(20mmorirg@58-00 lxs 40mmorig at 58-8 [Ellipsisin original.] k. At approximately1:45p.m.,LITVAK told the PPIFManager"bot em," indicatingthat LITVAK hadpurchased the HarborViewBondandthe LehmanBond. The ppIF Managerrepliedby proposingJefferiesnot receiveany compensation on (or "wash")the smaller HarborViewBondtradeand addfive ticks ascompensation on the LehmanBondtrade. Approximatelyoneminutelater,T.ITVAK responded,,thats fine." 38. The AllianceBemsteinLegacySecuritiesMasterFund,L.P. paid approximately $7,000,000for the HarborViewBond andapproximately$20,000,000 for the LehmanBond. 39. The sellerdid not offer to sell the HarborViewBondfor 59, asLITVAK misrepresented to the PPIFManagerfor the AllianceBernstein LegacySecuritiesMasterFund, L.P. In truth andin fact, asLITVAK knew,the seller'soffer wasactually5g. 40. The sellerdid not offer to sell the LehmanBond for 58-16,asLITVAK misrepresented to the PPIFManager.In truth andin fact,asLITVAK knew,the seller'soffer wasactually57. t2 A12 41. LITVAK did not communicate to the sellerthe PPIFManager'sbidsmade betweenapproximately 11;21a.m.and 11:42a.m.,asLITVAK misrepresented to theppIF Manager' In truth andin fact,asLITVAK knew,all his statements aboutthe seller'sreactionto thosebidswerefalse. 42. WhenLITVAK electronicallycommunicated with the PPIFManagerafter approximately 12:50p.m.,the sellerwasno longerseeking58 for the HarborViewBondor 58-8 for the LehmanBond,asLITVAK misrepresented to the PPIFManager.In truth andin fact,as LITVAK knew,the sellerhadalreadyagreedto acceptlower prices. 43. Jefferiesdid not pay the seller58 for the HarborViewBond,asLITVAK misrepresented to the PPIFManager.In truth andin fact,asLITVAK knew,Jefferiespaid 57-t6. 44. Jefferiesdid not pay the seller58-8for the LehmanBond,asLITVAK misrepresented to the PPIFManager.In truth andin fact,asLITVAK knew,Jefferiespaid 56-16. 45. Jefferiesdid not work without compensation on the HarborViewBondtrade,as LITVAK misrepresented to the PPIFManager.In truth andin fact,asLITVAK knew,on this risklesstrade,LITVAK took l6 ticks ascompensation for Jefferies,or approximately$60,000. 45. Jefferiesdid not work for five ticks of compensation on the LehmanBondtrade, or approximately$50,000,asLITVAK misrepresented to the PPIFManager.In truth andin fact, as LITVAK knew,on this risklesstrade,LITVAK took 61 ticks ascompensation for Jefferies,or approximately $650,000.-13-A13 47' It wasfurtherpart of the schemethat LITVAK would defraudvictim-customers buyingRMBS bondsheld in Jefferies'inventoryby misrepresenting thoseasordersandbid list tradeswith compensation for Jefferies"on-top,"takingincreasedandunearnedprofits because, on inventorytransactions, broker-dealers arenot entitledto extracompensation in additionto the pricepaid. By doingthis, LITVAK falselyportrayedhimselfto victim-customers astheir ally in negotiationsagainstnon-existentsellers,ratherthan admiuingthathe was,in fact,negotiating directlyagainsthis victim-customers. 48. To effecthis scheme,LITVAK would inventa fictitioussellerfor a bondthat Jefferiesalreadyhadin its inventoryandwasseekingto sell to a victim-customer.LITVAK would thenfalselydescribethe fictitious seller'sofferingprice andreactionto LITVAK,s negotiatingtactics. 49. For instance,on or aboutDecember23,2}}1,LITVAK executedhis schemein connectionwith the purchaseby the PPIFManagerfor the WellingtonManagement Legacy securitiesPPIFMasterFund,LP of theRMBS bondwFMBS 2006-ARl2 1Al (the..wells FargoBond"), asfollows: a. On or aboutDecember14,2009,LITVAK paid70 (meaning$70per $100 of currentfacevalue)for the Wells FargoBond,with an originalfacevalueof $6,230,000,for Jefferies'inventory. b. On or aboutDecember18,2009,LITVAK first offeredto sell Jefferies' Wells FargoBondto the WellingtonManagement LegacySecuritiesppIF MasterFund,Lp. LITVAK misrepresented that he hadan orderfrom a third party seller,writing,.i havea guy that has6+mmorig of wfmbs06-arl2 1al...my guy wouldsellto me at 77.... [ellipsesin original.]"-14-A14 The PPIF Manager bid74, and LITVAK respondedby describing his communicationswith the fictitious seller: i will reflect that in big man and seewhat he says.... at this point...he really wants me to work it longer (i just got the bondsthis am to work)....so he actually gave me the ol 'Just keep working em at 77" rap.....didnteven give me any room off 77.....fckfsic) he appreciatesit...but has some internal conversationsabout where he told them he can sell it and at75 he would not be looking good internally is what he said.... i thought i could work him over...but he is kind of being a weenie [Ellipses in original.] c. On or aboutDecember23,2009 at7:46 a.m.,LITVAK approachedthe PPIF Manager for the Wellington ManagementLegacy SecuritiesPPIF Master Fund, LP again, asking for information about anothertrade and suggesting"maybe i can use that as leverageto go beat the guy up that owns the 06-arl2 1al bonds....as of last nite it soundedlike he was starting to warm up to the idea of coming off his level [ellipsis in original]." d. At approximately 7:48 a.m., the PPIF Manager expressedinterest, asking "what's the current size and offer on the 06-ar12 lal again?" Approximately one minute later, LITVAK responded"it's 3+mm currentand he was offering them at77..... [ellipsis in original.]" e. At approximately 8:14 a.m., LITVAK updatedthe PPIF Manager by making further misrepresentationsabout the fictitious seller, writing "he is still red-dotted....usually rolls in around now.....so should know soon brotha..... [ellipses in original.]" ("Red-dotted" in this context meansthat the fictitious seller was unavailableto participate in electronic communications.) f. At approximately 8:46 a.m., LITVAK misrepresentedto the PPIF Managerthat he had concluded negotiationswith the seller at a price that would result in a four-tick profit to Jefferies,writing "winner winner chicken dinner......he is gonnasell em to me at-15 A15 75-28asi told him to not get cuteandjust sell the bondsso you canown themat 76....hesaid cool..... [ellipses in original.]" 50. The WellingtonManagement LegacySecuritiesPPIFMasterFund,Lp paid approximately$2,300,000for the Wells FargoBond. 51. LITVAK did not engagein anynegotiationsor communications with the sellerof Wells FargoBondon December23,2009,asLITVAK misrepresented to the ppIF Manager.In truth andin fact,asLITVAK knew,therewasno third party seller,sinceJefferiesalreadyowned the Wells FargoBond. 52. Jefferiesdid not purchasethe Wells FargoBond from a third party selleron December23,2009,asLITVAK misrepresented to the PPIFManager.In truth andin fact, as LITVAK knew,Jefferiespurchased that bondnine daysearlier,on or aboutDecember14,2009. 53. Jefferiesdid not pay the seller75-28for the Wells FargoBond,asLITVAK misrepresented to the PPIF Manager. In truth andin fact, asLITVAK knew, Jefferiespaid 70 or approximately$2,I 00,000. 54. Jefferies'profit on this setof transactions wasnot four ticks, or approximately $3,800,asLITVAK misrepresented to the PPIFManager.In truth andin fact, asLITVAK knew,Jefferies's profit was 192ticks,or approximately $185,000. The Securities 55. Beginningin approximately2009andcontinuinguntil approximatelyDecember 2011,theprecisedatesbeingunknownto the GrandJury,in the District of Connecticutand elsewhere, DefendantJESSEC. LITVAK knowinglyandwillfully, directlyandindirectly,by the useof meansandinstrumentalities of interstatecorlmerceandof themails,in connectionwith thepurchaseandsaleof securities,to wit, the RMBS setforth below,would anddid useand-16-A16 employ manipulative and deceptivedevices and contrivancesin violation of Title 17, Code of Federal Regulations,Section 240.l}b-5 by (i) employing the aforementioneddevices,schemes and artifices to defraud, (ii) making untrue statementsof material facts and omitting to state material facts necessaryto make the statementsmade not misleading in the light of the circumstancesunder which they were made and (iii) engaging in acts,practicesand coursesof businessthat would and did operateas a fraud and deceit on purchasersand sellers of such securitiesas set forth below, each constituting a separatecount of this Indictment: Count Trade Date Security FIVMLT 2006-102AIA I 3/3r/r0 (HarborViewBond) LXS 2007-l5N2Al 2 3/3Ur0 (LehmanBond) a J 6t22/tl HVMLT 2OO7-7 2AIA 4 7/t/t0 SARM 2005-2t 7Al WFMBS2OO6.ARI2 1AI 5 12123109 (Wells FargoBond) 6 5/28/09 INDX 2OO7-AP(7 2A1 7 L2/9t09 NYMT 2005.2A 8 l17/t0 DLSA 2OO6-ARI 2AIA 9 3/29/10 cwALT 2006-0431A1 l0 4 l I/1 0 LXS 2007-15N 2A1 1l tU22n0 FHAMS2OO5-AAIO 2AI All in violationof Title 15,UnitedStatesCode,Sections78j(b) andTTff,andTitle 18, United StatesCode.Section2. t7-A17 COTINTTWELVE TARP Fraud 1 8U. S. C$. 1 0 3 1 56. The allegationssetforth in paragraphsI through26 and28through54 of this lndictmentarereallegedandincorporatedasthoughfully setforth herein. 57. Beginningin approximatelyDecember2009andcontinuinguntil approximately December2011,in the District of Connecticutandelsewhere,DefendantJESSEC. LITVAK deviseda schemeandartifice to defraudthe United Statesandto obtainmoneyandpropertyby meansof falseandfraudulentpretenses, representations andpromisesin connectionwith grants, contracts,subcontracts, subsidies,loans,guarantees, insuranceandotherformsof Federal assistance-includingTARP, an economicstimulus,recoveryor rescueplan providedby the Government,andthe Government'spurchaseof troubledassetsasdefinedin the Emergency EconomicStabilizationAct of 2008-the valueof suchFederalassistance. or anyconstituent partthereofbeingin excessof $1,000,000. 58. On or aboutthe following dates,in the District of Connecticutandelsewhere, defendantLITVAK knowingly executedand attemptedto executethe aforementionedscheme and artifice with the intent to defraudthe United Statesandto obtainmoneyandpropertyby meansof falseandfraudulentpretenses, representations andpromisesin connectionwith such Federalassistance in the following RMBS bondtransactions with a TARP-FundedVictim: a. the March 31,2010saleof the HarborViewBondto AllianceBernstein LegacySecuritiesMasterFund,L.P.; b. the March 31,2010saleof the LehmanBondto AllianceBemsteinLegacy SecuritiesMasterFund.L.P.: c. theJune22,2011saleof theHVMLT 2007-72AlLbond to AllianceBernstein LegacySecuritiesMasterFund,L.P.;-18-A18 d. &e July 1,2010saleof the SARM 2005-217A1bondto InvescoLegacy Securities MasterFund.L.P.:and e. the December23,2009saleof the WellsFargoBondto Wellington ManagementLegacySecuritiesPPIFMasterFund,Lp. All in violationof Title 18,united statescode, Sections1031and2. COUNTSTHIRTEENthroughSIXTEEN FalseStatements to the Government l8 u.s.c.$ 1001 59. The allegations set forth in paragraphsI through 26 and28 tfurough54 of this Indictment are realleged and incorporatedas though fully set forth herein. 60. On or about the following dates,in the District of Connecticutand elsewhere, LITVAK, in a matter within the jurisdiction of the United StatesDeparhnentof Treasury,a departmentand agency of the United States,did knowingly and willfully make and causeto be made a materially false, fictitious, and fraudulent statement and representation to a PPIF Manager for a TARP-Funded Victim, each statementset forth below constituting a separate count of this lndictment:-19-A19 Date of Count Recipient False Statement Correct Fact Statement Traderat PPIF "[S]o to recapthe levelshe Jefferieshad already Managerfor is offeringto me: negotiatedwith the seller l3 3 t3 1/t0 AllianceBernstein hvmlt 06-102ala(20mm to purchasethe LegacySecurities orig) [the HarborView HarborView Bond at 57-MasterFund,L.P. Bondl@58-00." 16. Traderat PPIF "[S]o to recapthelevelshe Jeffeqieshad already Managerfor l4 3/3t/10 is offeringto me:... negotiatedwith the seller AllianceBernstein lxs 40mmorig [the to purchasethe Lehman LegacySecurities LehmanBondl at 58-8." Bond at 56-16. MasterFund,L.P. Traderat PPIF "[H]e is gonna sell em to Managerfor me at75-28 as i told him Jefferieshadactually Wellington to not get cute andjust sell purchased the Wells l5 t2/23/09 Management the bonds so you can own FargoBond in question LegacySecurities them [the Wells Fargo on December14,2009at PPIFMasterFund, Bondl at76....hesaid 70. LP cool." In electronicchatbetween LITVAK andseller Traderat PPIF forwardedto traderat In originalelectronicchat Managerfor PPIFManagerfor lnvesco betweenLITVAK and l6 6/24/r0 InvescoLegacy. LegacySecuritiesMaster seller,chatreflected SecuritiesMaster Fund,L.P., LITVAK Jefferies'actualpurchase Fund,L.P. alteredchatin original priceof 79-24. message to showJefferies' purchasepriceof "79-26." All in violationof Title 18,UnitedStatesCode,Sections1001and2.-20-A20 A TRUE BILL/s/UNITED STATESOF AMERICA/s/David B. Fein UNITED STATESATTORNEY/s/Jonathan N. Francis ATHAN N. FRANCIS ASSISTANTUNITED STATESATTORNEY/s/Eric J. Glover ERIC J. GLOVER ASSISTANTUNITED STATESATTORNEY-2r-A21 A22 A23 A24 A25 A26 A27 A28 A29 A30 A31 A32 A33 A34 A35 A36 A37 A38 A39 A40 A41 1 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)February 6, 2014 4 Government)11:59 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 PRETRIAL HEARING 10 B E F O R E: 11 THE HONORABLE JANET C. HALL, U.S.D.J. 12 A P P E A R A N C E S: 13 For The Government: Jonathan N. Francis 14 Eric Glover U.S. Attorney's Office-NH 15 157 Church St., 23rd floor New Haven, CT 06510 16 17 For the Defendant: Ross H. Garber Michael Chase 18 Shipman & Goodwin One Constitution Plaza 19 Hartford, CT 06103-1919 20 Patrick Smith Sarah B. Zimmer 21 John Michael Hillebrecht DLA Piper US LLP-NY 22 1251 Avenue of the Americas, 27th Floor 23 New York, NY 10020-1104 24 25--continued--A42 74 1 meet the standard of materiality. I don't happen to share 2 the defendant's view of how limited the government is in the 3 proof of this case. 4 With respect to the Motion to Preclude, the 5 defendant has repeatedly and appropriately reminded the court 6 he has a right under the Constitution of particularly the due 7 process clause thereto to mount a defense to the case put on 8 by the government, and it's certainly not ever going to be 9 and it is not now my intention from preventing him from being 10 able to do that. 11 However, as strongly as his counsel reminds me of 12 that fact, I will likewise remind him of the Supreme Court's 13 statement in Taylor versus Illinois sometime ago, clearly the 14 accused does not have an unfettered right to offer testimony 15 that's incompetent, privileged or inadmissible under the 16 standard of rules of evidence. The United States versus 17 England decision from the Second Circuit in 1999 obviously 18 adopts that view because it is Supreme Court law and applies 19 it in the context of relevancy. 20 With respect to the motion to preclude the two 21 experts, the Court will grant it in part and deny it in part. 22 I will start first with the government's argument that the 23 disclosure in early November on the date required was 24 deficient. I would agree with the government it was woefully 25 deficient. However, the defense subsequently sought, I A43 75 1 believe it was Attorney Garber's motion, an extension of time 2 if I recall correctly, to some date in January. I granted 3 that motion in part and gave until December 24 which is the 4 date upon which the disclosures that the government is citing 5 to and arguing about were filed. 6 So to the extent we're going to measure the ability 7 of these experts to testify based upon the adequacy of the 8 disclosures, I'm looking to the December 24 disclosure. In 9 my view, I gave the defense until then to make a disclosure 10 so I'm not going to preclude it, even though it was late in 11 the sense of the trial scheme that I set forth months ago, 12 maybe now almost a year ago, I still had given the defense 13 time until the 24th. So in my view, it is not late. 14 With respect to Mr. Willner, it is the Court's view 15 of much of what is proposed to be testified to by him is 16 irrelevant to the case before the court. For example, to the 17 extent he wants to the talk about the often misleading nature 18 of trader statements in the immateriality. Let's back up. 19 He talks about--first of all, I will say that I find the 20 disclosure under 702 to be lacking. Again it is sort of a--21 how shall I put it--a recitation sort of what he's going to 22 describe, what he's going to refer to, occasionally there's a 23 word that he will opine, but when there's such a phrase he 24 will opine, there's not the required disclosure of the basis 25 for that opinion. When I questioned counsel, he would often A44 76 1 say you have to look at what's said later in this disclosure 2 is where he's laying out his basis. That's I think is a 3 risky business because it requires me and the other side but 4 most particularly me in deciding has there been proper 5 disclosure to sort of hunt and peck among many, many pages, 6 10, 15, whatever with respect to Mr. Willner not knowing what 7 later pages relate to which of the opinions. In my view, a 8 disclosure the witness will opine that the bearing broke and 9 caused the injury, and the basis for that opinion is testing 10 as follows: observations as follows: review of documents as 11 follows: and a listing of them. That's not how the 12 disclosure is. I'm not going to stop at that as a reason to 13 prevent the testimony. I have to say it makes it difficult 14 for the Court to make a judgment about questions like 401 and 15 403 if I'm not certain what exactly which opinions he's 16 giving, whether he's qualified to give those opinions, 17 whether they're opinions stated to a reasonable degree of 18 certainty in his profession and finally is there a basis of 19 those opinions that would have some basis in his expertise. 20 To the extent I find in the disclosure the 21 suggestion that he would opine about or testify to fiduciary 22 duty owed to the client, that mandates certain professional 23 standards about whether, for example, you must disclose 24 something or you don't have to disclose something. I don't 25 find that relevant as I suggested in my questioning of A45 77 1 counsel. It isn't here a question of there was a sale and 2 you know, Mr. Litvak made too much money. The question is 3 Mr. Litvak caused the sale to happen by saying something 4 which was false, and the issue is is it material. 5 As to testimony that suggested as to what's fair 6 market value or were the prices paid fair, was there a profit 7 made after the fact, in my opinion, those are not relevant to 8 this case. I mean after the transaction occurred whether 9 there was a profit made or not is a function of things that 10 happened long after the statements that are at issue that are 11 claimed to be false were made. 12 In my view, the case focuses on what Mr. Litvak said 13 and whether what he said was false, whether what he said was 14 false was done with the intent to deceive or part of a scheme 15 to deceive, and whether it was material as that term is 16 understood as a legal term. That is that it affects the mix 17 of things that enter into the person receiving the 18 information decision. 19 I don't think under 401 that the testimony proffered 20 by this expert about fair market values or about profits in 21 the future and trades being within a realm of what's 22 reasonable is relevant. 23 MR. SMITH: May I ask a question? Your Honor seems 24 to have put two concepts together in there. I understand the 25 profit piece. On the intent to defraud piece to fair market A46 78 1 value, that goes straight to Mr. Litvak's intent. There's 2 objective proof that that transaction was a million dollars 3 for a bond and you got back a bond fairly valued at a million 4 dollars, means that there was no harm. 5 THE COURT: If you let me finish, maybe at the end 6 if you have any questions, you can ask me then. 7 Also to the extent that he proffered testimony about 8 the analysis of real estate--mortgage backed securities 9 transactions, quote, in the context of the market and within 10 its fair value, I also conclude it is not relevant under 401 11 and will tend to confuse under 403. 12 A fair value is what a willing buyer will pay a 13 willing seller, so in my view, it is almost metaphysically 14 difficult to think about these being opined about as being 15 fair if, in fact, that the jury concludes that the willing 16 buyer wouldn't have been willing had they been told the 17 truth. If he is told the truth, he's a willing buyer. The 18 price is fair even if he paid five times in actuality here. 19 Finally I think Mr. Willner is offered for the 20 question on the opinion that this is a volatile market. 21 Again I think it is irrelevant. The fact that it is 22 volatile. It is volatile. We're talking about a transaction 23 at a particular time based on a certain mix of information 24 provided to the buyer. There's one aspect of the testimony 25 that the Court reserves on. A47 79 1 With respect to Mr. Menchel, as to the testimony, it 2 appears he's offering opinions about their being no duty to 3 disclose. I find that irrelevant under 401. With respect to 4 the terms that he's offered to testify to about, what they 5 mean, based upon his expertise and further with respect to 6 what I would call background evidence about the nature of 7 these markets that they function in a different way, they 8 aren't of the New York Stock Exchange. How do people 9 communicate, how do they buy and sell things, the Court 10 reserves on that. I think that I should wait until I hear 11 how much comes in on that but I also think the defendant has 12 a right, if there's still some dispute or the record isn't 13 clear, he doesn't think the jury understands, he's allowed to 14 offer that evidence, even though the government thinks it 15 will be very clear, I suspect the defendant won't think it is 16 very clear, it sounds like the two sides don't necessarily 17 agree about what terms mean. I want to caution that when the 18 issue comes up again, which I would ask or invite the 19 defendant to indicate as the government's case gets close to 20 a close, that you see a need to offer testimony on these 21 subjects that I have broadly framed, that you be prepared to 22 tell me what it is you think they can offer and why it would 23 be helpful. I.e., not confuse them more than it adds sort of 24 probative information to them. 25 And secondly, I would also state that if it is A48 80 1 allowed, which I'm inclined to think I would allow it, that 2 it not be viewed as a way to open the door to the matters 3 which I have already ruled are irrelevant and which if 4 introduced in my opinion, the prejudicial value, the 5 confusion will greatly, greatly outweigh, I don't think it 6 has probative value but things like the post-transaction 7 performance of the bond. I mean if the day after one of 8 these transactions took place, the president announced he was 9 by executive order guaranteeing 100 percent of face value of 10 every mortgage backed securitized bond, clearly these people 11 would have made a heck of a killing. It has nothing to do 12 with this case, so I don't know why what happens in the 13 market after this transaction, which may show that these 14 people made money, that isn't what this case is about. So I 15 don't think post-transactional performance is admissible, and 16 I don't think this proffer at least as I understand it, as it 17 is disclosed in the 702 disclosure, as I commented on, is not 18 done in a manner that makes it easy for someone of my limited 19 abilities to understand, I do not find the things they are 20 speaking about in here about what's the fair market value or 21 its within the fair range or things like that that took place 22 at the fair market value, I don't find those to be relevant. 23 Therefore, further under 403, they are irrelevant their 24 ability to confuse the jury about what the issue really is in 25 this case greatly outweighs any probative value which I don't A49 81 1 think it has any. 2 To the extent particularly that Mr. Menchel talks 3 about going to opine, on page 15, that institutional bond 4 market participants such as investment funds do not regard 5 the disclosure of dealer's cost or profits as important, the 6 Court finds he has no basis for that opinion. One, he hasn't 7 told me and two, I look at his experience, I don't see how he 8 would. 9 There's another subject matter that Mr. Menchel was 10 offered for about training and compliance which I gather the 11 government intends to offer evidence on, and I would invite 12 the defendant to, in effect, tell me if he feels that he 13 needs to offer evidence on that subject and what exactly he 14 would want to offer as the government's case goes in. It may 15 be that we don't need it. I'm sure the defendant would 16 rather put their own witness up and have testimony about it. 17 Maybe that testimony would be different than what the 18 government witnesses say. I can't make that judgment about 19 it until I heard what the government is doing on the subject 20 so that was another area that I meant to indicate in effect I 21 reserve on so vocabulary, the general nature of the market 22 and training are I think the three areas I identified that I 23 will reserve on and may allow testimony on depending on where 24 we were at the time it becomes relevant, so that's the 25 Court's ruling on the motion. Yes sir. A50 1460 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)February 26, 2014 4 Government)8:51 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY SEVEN OF TRIAL 10 B E F O R E: 11 THE HONORABLE JANET C. HALL, U.S.D.J. AND JURY OF 15 12 13 A P P E A R A N C E S: 14 For The Government: Jonathan N. Francis Eric Glover 15 U.S. Attorney's Office-NH 157 Church St., 23rd floor 16 New Haven, CT 06510 17 For the Defendant: 18 Michael Chase Shipman & Goodwin 19 One Constitution Plaza Hartford, CT 06103-1919 20 Patrick Smith 21 Sarah B. Zimmer John Michael Hillebrecht 22 DLA Piper US LLP-NY 1251 Avenue of the Americas, 23 27th Floor New York, NY 10020-1104 24 25 A51 1734 1 which to form that opinion even though it wasn't disclosed as 2 an opinion. 3 As to, you know, words that are jargon that have 4 understandings in the industry based on his experience like 5 "all in" or "on top," he can tell us what his opinion is as 6 to what those terms mean. And the basis for his opinion, I 7 guess, is his experience as revealed, and that's okay, 8 subject to cross-examination. 9 MR. SMITH: If I may, your Honor, at the bottom of 10 page 13 in the sub (b) summary of opinions and bases 11 therefore, I think we have language that tee this up in the 12 bullet securities industry and practices that plainly 13 indicates that everything that follows is his expert opinion 14 on the meaning of certain terms. 15 THE COURT: Meaning of certain terms, I do not 16 include in that phrase, the meaning of certain terms or an 17 opinion about the meaning of certain terms, I do not find the 18 following words to equate to his opinion of the meaning of 19 certain terms, quote, Jefferies charged no commissions on any 20 of the trades referenced in the Indictment. That is--in 21 effect, it is a statement of fact. But as I say, if I read 22 in the words it is his opinion that they charged no 23 commission, I don't think that's the meaning of certain 24 terms. As to related industry practices, I don't think I 25 have ever said he could opine on that. A52 1735 1 MR. SMITH: In the prior bullet we do have, which I 2 don't think your Honor had a problem, which is the bottom of 3 13, carrying over to 14. 4 THE COURT: Yes, sir. 5 MR. SMITH: That in the scenario when one is acting 6 as principal. So he could describe what it means for a 7 dealer to trade for its own, acting as principal. 8 THE COURT: When? Right. When acting. 9 MR. SMITH: When. And not tie it back to Jefferies. 10 THE COURT: Right. 11 MR. SMITH: We'll in closing be able to tie that to 12 Mr. Paradiso's testimony. So we've got--13 THE COURT: I don't know if the Government objects, 14 but I would have trouble with keeping that out. I mean, I 15 don't know that it's been disputed. 16 MR. SMITH: I think what he could say is that in a 17 scenario when a broker/dealer is acting as principal, the 18 term commission is inapplicable. That's what the last 19 sentence of the first bullet says. And he wouldn't tie it 20 back to Jefferies. 21 THE COURT: I don't know that it's applicable. I 22 suppose somebody could agree to it, but I think what he's 23 saying a principal trades in his own account and he doesn't 24 charge a commission. 25 MR. FRANCIS: I agree. Those are the definitions of A53 1736 1 the terms. 2 THE COURT: You don't disagree with them. You could 3 stipulate to them, I would assume. 4 MR. FRANCIS: I suppose we probably could. The 5 issue here is that's not what they want him for. 6 THE COURT: I understand. That doesn't mean that's 7 what they are getting him for. 8 MR. FRANCIS: As long as we are talking about the 9 same thing then. I don't think this is a definition at all. 10 They are saying, he's going to define terms. He's going to 11 take the stand and he's going to opine broadly about the way 12 the world works. That's not a definition of a word "broker" 13 or "agent" or "dealer" or "principal," that's just telling 14 the jury how it should be because he's a paid expert. 15 THE COURT: As I said, it's been a long day and I'm 16 tired, but I thought I was very clear. I have said today and 17 I have said in the past, he would be allowed to testify 18 about, quote, the meaning of certain terms relevant to RMBS 19 trading, end quote, period. There's a period at the end of 20 that, Attorney Smith, and I hope that if you have any 21 question about what I'm allowing, I would ask you to ask me 22 because you have, on occasion, in my view, maybe mis--not 23 understood what I thought was appropriate. So I just want to 24 be sure you know exactly what I am allowing this man to 25 testify to. A54 1 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)March 7, 2014 4 Government)9:30 a.m. 5 v.) Jesse C. Litvak)3:13cr19(JCH) 6 Defendant.) ___________________________) 7 8 141 Church Street New Haven, Connecticut 9 DAY TWELVE OF TRIAL 10 (Verdict) 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 12 13 A P P E A R A N C E S: 14 For The Government: Jonathan N. Francis 15 Eric Glover U.S. Attorney's Office-NH 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Michael Chase 19 Shipman & Goodwin One Constitution Plaza 20 Hartford, CT 06103-1919 21 Patrick Smith Sarah B. Zimmer 22 John Michael Hillebrecht DLA Piper US LLP-NY 23 1251 Avenue of the Americas, 27th Floor 24 New York, NY 10020-1104 25 A55 2 1 (Whereupon, the jury deliberated from 9:30 a.m. to 2 2:15 p.m.) 3 THE COURT: We have received a note that reads as 4 follows: Your Honor, we have completed deliberation. Thank 5 you. Juror 10, dated today. I'm going to ask the clerk to 6 mark it as the next court exhibit. The clerk confirmed with 7 the jury that language meant they had a verdict. So I'm 8 about to bring the jury out and the alternates. 9 Before I do so, though, I know this is a very 10 emotional time. It always is. Regardless of what the 11 verdict is, I can imagine it will be emotional for obviously 12 Mr. Litvak yourself but all the people that have been here 13 with you every day in support of you. My remarks are 14 addressed to everyone in the courtroom. Most of the rest of 15 the people are reporters probably but I don't know if you 16 would have an outburst. My remarks apply to everybody. If 17 you do not feel you can sit here while the verdict is being 18 read without maintaining decorum, I would direct you to leave 19 the courtroom. The jury's job is hard enough. They know the 20 impact it has, one way or another, on the individuals 21 involved. They don't need to sit through reaction I guess I 22 will call it, the only word I can use, to what they have 23 done, I can only assume in good faith and hard work and 24 thoughtful deliberation. If you don't think you will be able 25 to control yourself, then I would invite you to leave. It is A56 3 1 a public courtroom. Everybody is welcome to stay but if 2 there's any kind of outburst, I will deem it in contempt of 3 court. I hope that's clear to everybody. Unless there's 4 anything else, I will direct the Deputy Clerk to get the jury 5 and bring them into the courtroom. 6 (In the presence of the alternate jurors.) 7 THE COURT: It's probably likely someone on the 8 court staff has told you but we received a note from the 9 jury that they reached a verdict, so we'll bring them back in 10 as well. We'll thank you for your willingness to come back 11 again today. 12 The record should reflect that counsel is here on 13 both the government side and the defense side and Mr. Litvak 14 is present. 15 (In the presence of the jury.) 16 THE COURT: You can take any seat. You can take any 17 seat, it doesn't matter, whatever is convenient for you all. 18 Everyone be seated please. Ladies and gentlemen of 19 the jury, have you agreed upon a verdict? 20 THE FOREPERSON: Yes, your Honor. We have. 21 THE COURT: Would you state your juror number. I 22 imagine you are the foreperson. 23 THE FOREPERSON: Yes, Juror 10. 24 THE COURT: Thank you. Would you hand the verdict 25 form to the officer please and he'll get it to me. A57 4 1 (Handing.) 2 THE COURT: Thank you very much. 3 Ladies and gentlemen, at this time the procedure of 4 the court calls for me to give your verdict to the Courtroom 5 Deputy, Diahann, and to have her read it into the record. 6 That way we have not only the paper copy, we also have a 7 transcription copy which means if anyone were to tamper with 8 the paper copy and suggest your verdict was different, we 9 would know we have it as a record. 10 She's going to read it through. When she's 11 finished, I'm going to ask you is that your verdict. You 12 would respond yes or you would respond no. Just answer my 13 question. When she finishes reading, I would ask you that 14 question. Diahann, if you would please read the verdict into 15 the record. 16 THE CLERK: In the case of the United States of 17 America versus Jesse C. Litvak, Criminal Action Number 18 313CR19. 19 As to the charge in Count One of Securities Fraud, 20 we, the jury, unanimously find the defendant, Jesse Litvak, 21 guilty. 22 As to the charge in Count Two of Securities Fraud, 23 we, the jury, unanimously find the defendant, Jesse Litvak, 24 guilty. 25 As to the charge in Count Three of Securities Fraud, A58 5 1 we, the jury, unanimously find the defendant, Jesse Litvak, 2 guilty. 3 As to the charge in Count Four of Securities Fraud, 4 we, the jury, unanimously find the defendant, Jesse Litvak, 5 guilty. 6 As to the charge in Court Five of Securities Fraud, 7 we, the jury, unanimously find the defendant, Jesse Litvak, 8 guilty. 9 As to the charge in Count Six of Securities Fraud, 10 we, the jury, you unanimously find the defendant, Jesse 11 Litvak, guilty. 12 There is no Count Seven. 13 As to the charge in Count Eight of Securities Fraud, 14 we, the jury, unanimously find the defendant, Jesse Litvak, 15 guilty. 16 As to the charge in Count Nine of Securities Fraud, 17 we, the jury, unanimously find the defendant, Jesse Litvak, 18 guilty. 19 As to the charge in Count Ten of Securities Fraud, 20 we, the jury, unanimously find the defendant, Jesse Litvak, 21 guilty. 22 As to the charge in Count Eleven of Securities 23 Fraud, we, the jury, unanimously find the defendant, Jesse 24 Litvak, guilty. 25 As to the charge in Count Twelve of Troubled Asset A59 6 1 Relief Program fraud, we, the jury, unanimously find the 2 defendant, Jesse Litvak, guilty. 3 As to the charge in Count Thirteen of false 4 statement in a matter within the jurisdiction of the United 5 States Government, we, the jury, unanimously find the 6 defendant, Jesse Litvak, guilty. 7 As to the charge in Count Fourteen of False 8 Statement in a matter within the jurisdiction of the United 9 States Government, we, the jury, unanimously find the 10 defendant, Jesse Litvak, guilty. 11 As to the charge in Count Fifteen of False Statement 12 in a matter within the jurisdiction of the United States 13 Government, we, the jury, unanimously find the defendant, 14 Jesse Litvak, guilty. 15 As to the charge in Count 16 of false statement in a 16 matter within the jurisdiction of the United States 17 Government, we, the jury, unanimously find the defendant, 18 Jesse Litvak, guilty. 19 And it is signed by the foreperson, dated at New 20 Haven, Connecticut, the 7th day of March, 2014. 21 THE COURT: Thank you. Ladies and gentlemen of the 22 jury, is that your verdict so say you all. 23 THE JURY: Yes. 24 THE COURT: Does the government request polling of 25 the jury? A60 7 1 MR. GLOVER: No, your Honor. 2 THE COURT: The defense? 3 MR. SMITH: Yes, your Honor. 4 THE COURT: The request has been made, ladies and 5 gentlemen, because you all responded but even I couldn't look 6 at you all at the moment you opened your mouth and said what 7 I heard to be yes. There's a procedure known as polling. 8 What that entails, Diahann is going to ask each of you. 9 She'll say juror number one, is that your verdict? You will 10 answer whatever the answer is. Go down. Each juror would 11 answer in response to Diahann's question. So, Diahann, would 12 you do that? 13 THE CLERK: Juror One, is that your verdict? 14 THE JUROR: Yes. 15 THE CLERK: Juror Two, is that your verdict? 16 THE JUROR: Yes. 17 THE CLERK: Juror Three, is that your verdict? 18 THE JUROR: Yes. 19 THE CLERK: Juror Four, is that your verdict? 20 THE JUROR: Yes. 21 THE CLERK: Juror Five, is that your verdict? 22 THE JUROR: Yes. 23 THE CLERK: Juror Six, is that your verdict? 24 THE JUROR: Yes. 25 THE CLERK: Juror Seven, is that your verdict? A61 8 1 THE JUROR: Yes. 2 THE CLERK: Juror Eight, is that your verdict? 3 THE JUROR: Yes. 4 THE CLERK: Juror Nine, is that your verdict? 5 THE JUROR: Yes. 6 THE CLERK: Juror Ten, is that your verdict? 7 THE JUROR: Yes. 8 THE CLERK: Juror Eleven, is that your verdict? 9 THE JUROR: Yes. 10 THE CLERK: Juror Twelve, is that your verdict? 11 THE JUROR: Yes. 12 THE COURT: Thank you. The Court directs that the 13 verdict be recorded and made a part of the record of this 14 case. 15 With that statement, ladies and gentlemen, that 16 completes your duties, and in a moment, I will discharge you. 17 Before I do that, though, I have to extend to you my sincere 18 appreciation for your attentiveness and obviously careful 19 deliberations over this case. It is never easy to serve as a 20 juror, but as I explained to you at the beginning on the 21 selection of the jury, it is necessary to our system of 22 justice, and I just want to thank you very much for your 23 service. 24 It is my practice after every jury is finished and I 25 have discharged you and you're free to go, I like to come A62 1 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)July 23, 2014 4 Government)10:00 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 SENTENCING HEARING 10 B E F O R E: 11 THE HONORABLE JANET C. HALL, U.S.D.J. 12 13 A P P E A R A N C E S: 14 For The Government: Jonathan N. Francis Christopher Mattei 15 U.S. Attorney's Office-NH 157 Church St., 23rd floor 16 New Haven, CT 06510 17 For the Defendant: 18 Patrick Smith John Michael Hillebrecht 19 DLA Piper US LLP-NY 1251 Avenue of the Americas, 20 27th Floor New York, NY 10020-1104 21 Ross Garber 22 Shipman & Goodwin One Constitution Plaza 23 Hartford, CT 06103-1919 24 25 A63 173 1 that we may raise that may result in a reduced sentence. 2 That's the fourth issue. 3 We think the three issues that we framed are 4 substantial, that's our motion. And we move for bail pending 5 appeal. 6 THE COURT: I'm about to say something again that I 7 shouldn't say--I will restrain myself. 8 MR. SMITH: I'm very mindful--9 THE COURT: You are going to have a hard time 10 sustaining the sentence I imposed on appeal. 11 MR. SMITH: We're very thoughtful and mindful of--12 THE COURT: I'm not being critical of you. I'm 13 saying that's not a serious grounds for appeal. 14 MR. SMITH: I want to be complimentary to your 15 Honor--16 THE COURT: You don't need to be. 17 MR. SMITH: Very thoughtful and mindful of the 18 thoughtful sentence you imposed, but I feel we need to make 19 the motion. Those are the grounds. 20 THE COURT: Attorney Francis, to the first three 21 grounds, would you respond to those as he has a serious 22 question on getting a reversal or a new trial, whatever on 23 those. I think he argued sufficiency of the evidence on 24 materiality and the intent defraud and I'm sorry--25 MR. FRANCIS: Experts. A64 174 1 THE COURT: The proof of the fact there wasn't any 2 really loss here. 3 MR. FRANCIS: The experts were precluded. 4 THE COURT: Were precluded, right. Okay. 5 MR. FRANCIS: So whether or not it raises a question 6 of law or fact, apparently he disagrees, but the standard in 7 the statute is likely of prevailing on these. Your Honor's 8 decisions on these three points are completely consistent 9 with the Second Circuit and Supreme Court. The facts as 10 phrased in order to torture them into being able to make 11 these arguments, your Honor, those facts to obtain unless the 12 arguments they were making were premised on the factual 13 misstatements or misunderstanding of what the circumstances 14 was. It seems there is practically no chance of success on 15 these three arguments, much less likelihood of success. 16 Although they are creative and do justice to counsel's 17 creativity and hard work, they are unlikely to prevail in the 18 Second Circuit. And bail in this circumstance would be, 19 pending appeal, would be unwarranted under the statute. I 20 agree that there's no likelihood of flight to the extent that 21 your Honor posed a question, we have no dispute. 22 THE COURT: On the first three points raised by 23 Attorney Smith, we have argued about them. I have decided 24 them several different times, most recently in the ruling 25 post trial. You know, anyone can make a mistake and I put A65 175 1 myself right of top of list. Obviously, my goal is not to 2 make a mistake. I don't want people to have to go through 3 this again to start with. Also just because that's just. 4 And so I hope I haven't made any mistakes, but I cannot see a 5 mistake or a combination of mistakes that would result in the 6 reversal of the convictions on all 15 counts. The TARP 7 fraud, I think it's the first charge in the country. I mean, 8 maybe I got it wrong. We sort of--not made it up. It had 9 to be written by us. But there's other counts that, you 10 know, in many respects it's a fact finding by the jury. And 11 there certainly was sufficient evidence for them to draw the 12 inferences they needed to draw. There was evidence on the 13 record. So I think--I don't think. 14 My ruling is to deny the oral motion for release 15 pending appeal because I do not find a substantial question 16 of law or fact that's likely to result in a new trial or 17 reversal or a lower sentence. Obviously, you are able to go 18 to the circuit. They'll take a look at it. If they see 19 something that they think is going to result in a likely or 20 at least a serious question for them, they obviously can give 21 you this relief, but I could not. Again, I'm not--I know 22 I'm far from perfect, but I just can't any basis on which I 23 can make the finding required by 3143 BB. I don't have a 24 basis to make that finding, so the motion is denied. Is 25 there anything further? A66 176 1 I hate to prolong this, but I think I probably 2 failed to sort of sum my consideration of the factors. And I 3 think the nature and circumstance of the crimes Mr. Litvak 4 committed, particularly in terms of their seriousness, their 5 impact on markets, the impact on the victims, his clients, 6 who as was argued, trusted him. Indeed even to today still 7 trust him. All of that is serious and weighs very heavily in 8 determining my sentence and imposing a sentence upon Mr. 9 Litvak. There is, of course, his history and 10 characteristics, which all, in many respects if you take out 11 this conduct, all weigh very heavily in his favor, in effect, 12 in terms of the balance of these factors. I think the last 13 factor really that's the most important in this case is the 14 whole deterrence issue, which I struggle with every time in a 15 white-collar case. I don't have an empirical study. I don't 16 have data that I have collected, but it's my belief that the 17 sentence should be significantly longer if I believe the 18 person will recidivate or is not a Category I defendant, 19 which is not unusual in fraud cases. There are defendants 20 who commit multiple frauds. In those cases, the need to 21 deter that defendant is significant and therefore the 22 sentence has to be long enough to accomplish. That was not 23 present here, and least not present in my opinion. That 24 didn't really weigh into my determination. The general 25 deterrence issue is the one I really grapple with because of A67 177 1 the lack of good analysis, good data, to show that I'm pretty 2 persuaded, but I don't know that I have any evidence to prove 3 it, but that a term of incarceration is a significant 4 deterrent effect in white-collar crimes. I'm not persuaded 5 that making them long, whatever you define long is, longer 6 than I made it here is necessary to accomplish that in this 7 case. I think sometimes those of us involved in the criminal 8 justice system lose sight, and we have lost sight, certainly 9 in drug cases, of how really long sentences are. I just 10 suggest that you think about what you were doing two years 11 ago and ask yourself what's happened in your life, that will 12 measure to you what a two-year sentence is for this 13 defendant. I think it's long enough to provide the public 14 deterrence, I will call it, the general deterrence that I 15 need to address. Those are really how I kind of weighed and 16 considered and in the end balanced to come out to the 17 sentence that I did. 18 Unless there's anything further, the Court will 19 stand in recess. 20 (Whereupon, the above hearing adjourned.) 21 22 23 24 25 A68 178 1 2 3 4 5 COURT REPORTER'S TRANSCRIPT CERTIFICATE 6 I hereby certify that the within and foregoing is a true and 7 correct transcript taken from the proceedings in the 8 above-entitled matter. 9 10/s/Terri Fidanza 11 Terri Fidanza, RPR 12 Official Court Reporter 13 14 15 16 17 18 19 20 21 22 23 24 25 A69 Case 3:13-cr-00019-JCH Document 275 Filed 07/25/14 Page 1 of 4 AO245b (USDC-CT Rev. 9/07) UNITED STATES DISTRICT COURT Page 1 District of Connecticut UNITED STATES OF AMERICA JUDGMENT IN A CRIMINAL CASE v. CASE NO. 3:13CR19 (JCH) USM NO: 21467-014 Jesse C. Litvak Jonathan Francis Assistant United States Attorney Patrick Smith/Ross Garber Defendant’s Attorney THE DEFENDANT: was found guilty on counts 1-6, 8-11, 12 and 13-16 of the Indictment. Accordingly the defendant is adjudicated guilty of the following offenses: Title & Section Nature of Offense Offense Concluded Counts Title 18, United States Code, Securities Fraud December 2011 1-6, 8-11 Sections 78(b), 78ff Title 18, United States Code, Asset Relief Program December 2011 12 Section 1031 (TARP) Fraud Title 18, United States Code, False Statements December 2011 13, 14, 15, 16 Section 1001 The following sentence is imposed pursuant to the Sentencing Reform Act of 1984. The sentence imposed is a non-guideline sentence based upon the loss tables overstating the guidelines, the nature and circumstances of the offense and the history and characteristics of the defendant. The sentence is sufficiently long to serve the need for deterrence. IMPRISONMENT The defendant is hereby committed to the custody of the Federal Bureau of Prisons to be imprisoned for a total of 24 months on each of counts 1-6 and 8-16, all to run concurrently, for a total term of imprisonment of 24 months. SUPERVISED RELEASE Upon release from imprisonment, the defendant shall be on supervised release for a total term of 3 years on each of counts 1-6 and 8-16, all to run concurrently, for a total term of supervised release of 3 years. The Mandatory and Standard Conditions of Supervised Release as attached, are imposed. In addition, the following Special Conditions are imposed: 1. The defendant shall participate in a program approved by the Probation Office for inpatient or outpatient substance abuse treatment and testing. The defendant shall pay all or a portion of the costs associated with treatment based on the defendant’s ability to pay as determined by the Probation Office. 2. Restitution to be determined and Order of Restitution entered upon filing of submission, by the government within 45 days. The defendant shall pay any restitution that is imposed by this judgment, payable immediately, and any amount that remains unpaid at the commencement of the term of supervised release shall be paid at a rate of no less than 10% of the defendant’s net income per month. The monthly payment schedule may be adjusted based on the defendant’s ability to pay as determined by the Probation Office and approved by the court. 3. The defendant shall pay the fine that is imposed by this judgment, payable immediately, if not paid in full within 30 days, interest shall accrue at the legal/T-Bill rate in accordance with the statute, and any amount that remains unpaid at the commencement of the term of supervised release shall be paid at a rate of no less than 10% of the defendant’s net income per month. The monthly payment schedule may be adjusted based on the defendant’s ability to pay as determined by the Probation Office and approved by the court 4. The defendant shall not incur new credit card charges above $250 or open additional lines of credit without the prior permission of the Probation Office until the defendant's criminal debt obligation is paid. The defendant shall not add any new names to any lines of credit, shall not be added as a secondary card holder on another's line of credit, and shall provide the Probation Office with electronic access to any online management of any lines of credit, including lines of credit for businesses/LLC's that are owned, operated or otherwise associated with the defendant. A70 CaseRev. AO245b (USDC-CT 3:13-cr-00019-JCH 9/07) Document 275 Filed 07/25/14 Page 2 of 4 Page 2 5. The defendant shall close all other savings/checking accounts, transfer all assets into one main bank account and shall not add any new account holders to that account (the account may include the defendant's spoouse if there are joint marital assets/expenses). The defendant shall provide the Probation Office with electronic "read only" access to any online management of the account. The defendant shall provide the final statement from each account that is closed to ensure that no funds are dissipated during the closing of existing accounts and opening of the single account. 6. The defendant shall permit the Probation Office to monitor investment and retirement accounts, to include coordinating with the account administrator to notify the Probation Office of any activity on the account. 7. The defendant shall not encumber personal homes or investment properties without permission of the court, and shall not transfer, sell, give away, barter, or dissipate in any way any assets, including personal property (ie: motor vehicles, recreational vehicles) without the express permission of the Probation Office and notification to the court. 8. Upon request, the defendant shall submit a proposed budget (detailing expected income and expenses) to the Probation Office, after which the Probation Office shall communicate his/her approval to the defendant. The defendant shall adhere to the approved budget and any deviations must be approved before incurring and paying the expense. Any receipt of income or asset not anticipated by the approved budget shall be reported to the Probation Office within two days of the receipt of the income or asset, or within two days of the defendant's receipt of knowledge that such income or asset will be received, whichever comes sooner. Such unanticipated income or asset can not be disposed of without prior permission of the Probation Office. 9. The defendant shall retain receipts for inspection, upon reasonable notice, any expenditures greater than $250. 10. The defendant shall not possess ammunition, a firearm or other dangerous weapon. CRIMINAL MONETARY PENALTIES The defendant must pay the total criminal monetary penalties under the schedule of payments (as follows) or (as noted on the restitution order). Special Assessment: $1,500.00 $100 on each of counts 1-6 & 8-16, for a total of $1,500 to be paid immediately. Fine: $1,750,000.00 The defendant shall pay the fine that is imposed by this judgment, payable immediately, if not paid in full within 30 days, interest shall accrue at the legal/T-Bill rate in accordance with the statute, and any amount that remains unpaid at the commencement of the term of supervised release shall be paid at a rate of no less than 10% of the defendant’s net income per month. The monthly payment schedule may be adjusted based on the defendant’s ability to pay as determined by the Probation Office and approved by the court Restitution: Restitution to be determined and Order of Restitution entered upon filing of submission, by the government within 45 days. The defendant shall pay any restitution that is imposed by this judgment, payable immediately, and any amount that remains unpaid at the commencement of the term of supervised release shall be paid at a rate of no less than 10% of the defendant’s net income per month. The monthly payment schedule may be adjusted based on the defendant’s ability to pay as determined by the Probation Office and approved by the court. It is further ordered that the defendant will notify the United States Attorney for this district within 30 days of any change of name, residence or mailing address until all fines, restitution, costs and special assessments imposed by this judgment, are paid. A71 CaseRev. AO245b (USDC-CT 3:13-cr-00019-JCH 9/07) Document 275 Filed 07/25/14 Page 3 of 4 Page 3 JUDICIAL RECOMMENDATION(S) TO THE BUREAU OF PRISONS The defendant shall be designated to the Satellite Camp at FCI Otisville. The defendant shall self surrender no sooner than 10/23/2014 and no later than 11/5/2014. In the event the defendant does not receive designation by the Bureau of Prisons by 11/5/2014, the defendant must self surrender to the United States Marshal, at New Haven, Connecticut by noon on 11/5/2014. 7/23/2014 Date of Imposition of Sentence/s/Janet C. Hall ____________________________ Janet C. Hall United States District Judge Date: 7/25/2014 RETURN I have executed this judgment as follows: Defendant delivered on to a, with a certified copy of this judgment. Joseph P. Faughnan United States Marshal By Deputy Marshal CERTIFIED AS A TRUE COPY ON THIS DATE ___________ ROBERTA D. TABORA, Clerk BY: Deputy Clerk A72 AO245b (USDC-CT Rev. 9/07) Case 3:13-cr-00019-JCH Document 275 Filed 07/25/14 Page 4 of 4 Page 4 CONDITIONS OF SUPERVISED RELEASE In addition to the Standard Conditions listed below, the following indicated (O) Mandatory Conditions are imposed: MANDATORY CONDITIONS  (1) The defendant shall not commit another federal, state or local offense;  (2) The defendant shall not unlawfully possess a controlled substance; Q (3) The defendant who is convicted for a domestic violence crime as defined in 18 U.S.C. section 3561(b) for the first time shall attend a public, private, or private non-profit offender rehabilitation program that has been approved by the court, in consultation with a State Coalition Against Domestic Violence or other appropriate experts, if an approved program is available within a 50-mile radius of the legal residence of the defendant;  (4) The defendant shall refrain from any unlawful use of a controlled substance and submit to one drug test within 15 days of release on supervised release and at least two periodic drug tests thereafter for use of a controlled substance; Q (5) If a fine is imposed and has not been paid upon release to supervised release, the defendant shall adhere to an installment schedule to pay that fine;  (6) The defendant shall (A) make restitution in accordance with 18 U.S.C. sections 2248, 2259, 2264, 2327, 3663, 3663A, and 3664; and (B) pay the assessment imposed in accordance with 18 U.S.C. section 3013; Q (7) (A) In a state in which the requirements of the Sex Offender Registration and Notification Act (see 42 U.S.C. §§ 16911 and 16913) do not apply, a defendant convicted of a sexual offense as described in 18 U.S.C. § 4042(c)(4) (Pub. L. 105-119, § 115(a)(8), Nov. 26, 1997) shall report the address where the defendant will reside and any subsequent change of residence to the probation officer responsible for supervision, and shall register as a sex offender in any State where the person resides, is employed, carries on a vocation, or is a student; or (B) In a state in which the requirements of Sex Offender Registration and Notification Act apply, a sex offender shall (i) register, and keep such registration current, where the offender resides, where the offender is an employee, and where the offender is a student, and for the initial registration, a sex offender also shall register in the jurisdiction in which convicted if such jurisdiction is different from the jurisdiction of residence; (ii) provide information required by 42 U.S.C. § 16914; and (iii) keep such registration current for the full registration period as set forth in 42 U.S.C. § 16915;  (8) The defendant shall cooperate in the collection of a DNA sample from the defendant. While on supervised release, the defendant shall also comply with all of the following Standard Conditions: STANDARD CONDITIONS (1) The defendant shall not leave the judicial district or other specified geographic area without the permission of the court or probation officer; (2) The defendant shall report to the probation officer in a manner and frequency directed by the court or probation officer; (3) The defendant shall answer truthfully all inquiries by the probation officer and follow the instructions of the probation officer; (4) The defendant shall support the defendant’s dependents and meet other family responsibilities (including, but not limited to, complying with the terms of any court order or administrative process pursuant to the law of a state, the District of Columbia, or any other possession or territory of the United States requiring payments by the defendant for the support and maintenance of any child or of a child and the parent with whom the child is living); (5) The defendant shall work regularly at a lawful occupation unless excused by the probation officer for schooling, training, or other acceptable reasons; (6) The defendant shall notify the probation officer at least ten days prior to any change in residence or employment, or if such prior notification is not possible, then within five days after such change; (7) The defendant shall refrain from excessive use of alcohol and shall not purchase, possess, use, distribute, or administer any controlled substance, or any paraphernalia related to any controlled substance, except as prescribed by a physician; (8) The defendant shall not frequent places where controlled substances are illegally sold, used, distributed, or administered, or other places specified by the court; (9) The defendant shall not associate with any persons engaged in criminal activity, and shall not associate with any person convicted of a felony unless granted permission to do so by the probation officer; (10) The defendant shall permit a probation officer to visit the defendant at any time at home or elsewhere and shall permit confiscation of any contraband observed in plain view by the probation officer; (11) The defendant shall notify the probation officer within seventy-two hours of being arrested or questioned by a law enforcement officer; (12) The defendant shall not enter into any agreement to act as an informer or a special agent of a law enforcement agency without the permission of the court; (13) The defendant shall pay the special assessment imposed or adhere to a court-ordered installment schedule for the payment of the special assessment; (14) The defendant shall notify the probation officer of any material change in the defendant’s economic circumstances that might affect the defendant’s ability to pay any unpaid amount of restitution, fines, or special assessments. The defendant shall report to the Probation Office in the district to which the defendant is released within 72 hours of release from the custody of the U.S. Bureau of Prisons. Upon a finding of a violation of supervised release, I understand that the court may (1) revoke supervision and impose a term of imprisonment, (2) extend the term of supervision, and/or (3) modify the conditions of supervision. These conditions have been read to me. I fully understand the conditions and have been provided a copy of them. (Signed) ________________________________ ______________ Defendant Date ________________________________ _______________ U.S. Probation Officer/Designated Witness Date A73 Case: 14-2902 Document: 41 Page: 1 10/03/2014 1335682 1 United States Court of Appeals FOR THE SECOND CIRCUIT _____________________ At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 3rd day of October, two thousand fourteen. Present: RALPH K. WINTER, REENA RAGGI, PETER W. HALL, Circuit Judges.----------------------------------------------------------------------UNITED STATES OF AMERICA, Appellee, ORDER v. No. 14-2902-cr JESSE C. LITVAK, Defendant-Appellant.----------------------------------------------------------------------Defendant Jesse C. Litvak, through counsel, moves for release pending appeal. Upon due consideration, it is hereby ORDERED that the motion is GRANTED because Litvak has raised "a substantial question of law or fact likely to result in... reversal." 18 U.S.C. § 3143(b)(1). The conditions of release established by the district court shall remain in full force and effect during the pendency of this appeal. FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court A74 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 2 of 33 limine that remain pending in this Ruling. At the outset, the court notes that this Ruling is based on the record currently before the court. II. DISCUSSION A. Litvak’s Motion in limine to Exclude Evidence that He Acted as an "Agent" or "Broker" for Counterparties (Doc. No. 356) Litvak has filed a Motion in limine seeking to exclude testimony by witnesses and argument by the government that he acted as an agent of his counterparties in the residential mortgage-backed security (RMBS) trades described in the Indictment. See Mem. of Law in Supp. of Def.’s Mot. in limine to Exclude Evidence that Mr. Litvak Acted as an "Agent" or "Broker" for Counterparties at 1 ("Def.’s Agent/Broker Mem.") (Doc. No. 356-1). In this same Motion, Litvak also seeks to exclude the government and its witnesses from referring to Litvak as a "broker." Id. at 8. The government filed an Opposition to Litvak’s Motion, see Gov’t’s Opp. to Def.’s Mot. in limine to Exclude Evidence that Litvak Acted as an "Agent" or "Broker" ("Gov’t’s Agent/Broker Opp.") (Doc. No. 387), to which Litvak timely replied, see Jesse C. Litvak’s Reply in Supp. of the Mot. in limine to Exclude Evidence that Litvak Acted as an "Agent" or "Broker" ("Def.’s Agent/Broker Reply") (Doc. No. 412). The parties argued their respective positions on this Motion at length during the oral argument held on June 16, 2016. See Minute Entry (Doc. No. 430). For the reasons that follow, the court now grants in part and denies in part Litvak’s Motion. reservation of the right to argue that the government has opened the door to certain lines of inquiry and testimony is necessary. Nonetheless, at oral argument on the Motions in limine, the court noted that Litvak had explicitly reserved this right and terminated these Motions as moot in light of the parties’ agreement. See Minute Entry (Doc. No. 430). 2 A75 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 3 of 33 Litvak’s primary argument in this Motion is that, pursuant to Rules 401, 403, and 701 of the Federal Rules of Evidence, the government should be prohibited from (1) arguing that Litvak was an agent of the counterparties to the RMBS trades at issue in this case, and (2) eliciting testimony from witnesses that they understood Litvak to be acting as their agent during these trades. Much of Litvak’s support for this Motion comes from the fact that, before the Second Circuit, the government "conceded that Litvak was acting exclusively as a principal, and not as an agent, in the transactions at issue in this case." United States v. Litvak, 808 F.3d 160, 187 n.32 (2d Cir. 2015). Therefore, he argues that any reference to "agents" or "agency" in front of the jury would be confusing and prejudicial. Def.’s Agent/Broker Mem. at 4 (Doc. No. 356). He also argues that permitting witnesses called by the government to testify that they understood Litvak to be operating as their agent would be improper under Rule 701. See id. at 6. In response, the government argues that, although "[t]here has never been any dispute that, as a legal matter, firms like Jefferies are'dealers’ engaged in'principal’ trades that have no fiduciary duties to their counter-parties," the court should not bar government witnesses from testifying as to what they "understood [their] relationship with Litvak to be, based on the facts of their interaction." Gov’t’s Agent/Broker Opp. at 1, 2 (Doc. No. 387). According to the government, such testimony is factual, not legal, in nature. Id. at 4. Given the government’s concession that, as a matter of law, Litvak was not an agent of the counterparties during the RMBS trades at issue in this case, it would be highly improper for the government to argue to the jury that Litvak was an agent of the counterparties. The government does not dispute this point. Thus, to the extent 3 A76 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 4 of 33 Litvak’s Motion seeks to preclude the government from arguing to the jury, directly or by analogy, that Litvak was actually an agent of the counterparties during the RMBS trades, that part of the Motion is granted absent objection. However, the court denies the part of Litvak’s Motion that seeks to preclude witnesses from testifying about their perception of the relationship between Litvak and themselves, even if, in the course of such testimony, they colloquially say that they understood Litvak to be their "agent." Such testimony is both relevant and probative,2 as it could plausibly be part of the government’s efforts to "establish the materiality of the information Litvak misrepresented," and could likewise "contribute[] to the inference that Litvak was acting with fraudulent intent." Gov’t’s Agent/Broker Opp. at 9 (Doc. No. 387). Furthermore, because these witnesses are testifying to their own point of view— i.e., what they understood their relationship to Litvak to be, based on the events leading up to these trades as they experienced them—this testimony is unlikely to confuse the jury or to be unduly prejudicial to Litvak, and any confusion or prejudice that could result can be ameliorated by cross-examination of the witnesses, the testimony of an expert witness for the defense, instruction to the jury that the witness’s testimony is not the law, or all three. Because the testimony of witnesses for the government about their perceptions is (1) relevant, and (2) more probative than prejudicial, the evidence at issue is admissible under Rules 401 and 403 of the Federal Rules of Evidence. 2 As the Second Circuit noted while holding that Marc Menchel should have been permitted to testify on "the agent/principal distinction" at the first trial, "[t]he nature of Litvak’s relationship with the alleged victims formed the context in which the jury had to consider whether the portfolio managers and traders who testified reflected the views of a reasonable investor." Litvak, 808 F.3d at 187. 4 A77 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 5 of 33 Nor should the evidence at issue be excluded as improper lay opinion testimony under Rule 701, as Litvak urges. In support of this argument, Litvak cites United States v. Garcia for the proposition that, "[i]f [a lay] opinion rests'in any way’ upon scientific, technical, or other specialized knowledge, its admissibility must be determined by reference to Rule 702, not Rule 701." Garcia, 413 F.3d 201, 215 (2d Cir. 2005) (citation omitted). Litvak argues that allowing lay witnesses to testify about their understanding of their relationship to Litvak runs afoul of this principal because "testifying about the legal status of the relationship between Mr. Litvak and his counterparties requires'specialized knowledge.’" Def.’s Agent/Broker Reply at 4 (Doc. No. 412). In this argument, Litvak conflates evidence of what the legal status of the relationship between himself and the counterparties actually was (e.g., what that relationship was as a matter of law) with evidence about how the counterparties perceived their relationship with Litvak to be. While the former may rely on "scientific, technical, or other specialized knowledge," Garcia, 413 F.3d at 215, the latter does not. As noted above, no one disputes that, as a matter of law, Litvak was not the agent of his counterparties. That fact does not mean that individual counterparty witnesses are offering impermissible lay opinion testimony when they state that, based upon their experience of events and facts relevant to this case, they understood Litvak to be working on their behalf, even if, in the course of that testimony, they use the word "agent" in its colloquial sense to describe their understanding. Because the testimony the government seeks to offer about these witnesses’ view of their relationship to Litvak is "rationally based on the witness’s perception," "helpful to clearly understanding the witness’s testimony or to determining a fact in issue," and "not based on scientific, technical, or other specialized knowledge 5 A78 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 6 of 33 within the scope of Rule 702," Fed. R. Evid. 701, this testimony is admissible under Rule 701. Litvak’s Motion in limine on this point is denied. The court also denies Litvak’s Motion to preclude the government and witnesses from referring to Litvak as a "broker." As the government argues—and Litvak concedes—at the last trial the term "broker" and Litvak’s preferred term of "dealer" were often used interchangeably. See Def.’s Agent/Broker Reply at 5 (Doc. No. 412). In light of this fact, Litvak concedes that he "does not ask the Court to take on the burden of policing witnesses’ use of these terms[, n]or does he ask that all references to the term'broker’ be stricken from documentary evidence." Id. According to Litvak, he seeks merely to have "the government use the proper terminology in referring to Mr. Litvak’s role." Id. However, the court sees little reason to police the government’s use of a term that Litvak concedes would not be prejudicial in the mouths of witnesses or on the face of the government’s documentary evidence, especially when the government will likely want to refer to the testimony of those witnesses and the content of those documents in their original language. To the extent Litvak wants to draw out the distinction between dealers and brokers—and the importance of that distinction for this case—he can do so through cross-examination of the witnesses or the presentation of expert testimony. Any residual prejudice that could arise from jurors importing their understanding of what a "broker" is from their experiences in their day-to-day lives can be cured, if necessary, by an instruction to the jury, either at the time of the testimony or prior to their deliberations. For these reasons, the court concludes that use of the term "broker" in this case is permissible under Rule 401 and is not excludable under Rule 403 (in particular, because use of the term is not unfairly prejudicial, confusing, or misleading to 6 A79 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 7 of 33 the jury), and therefore denies Litvak’s Motion in limine to exclude references to Litvak as a "broker" at trial. In sum, this Motion in limine is granted in part and denied in part. The government will not be permitted to argue that Litvak was the agent of his counterparties as a matter of law, but witnesses will be permitted to testify to their understanding that Litvak was working on their behalf during the trades at issue in this lawsuit even if, in the course of such testimony, they colloquially refer to Litvak as their "agent." In addition, witnesses and the government will be permitted to refer to Litvak as a "broker" or "broker-dealer." B. Litvak’s Motion in limine to Exclude Evidence about the Identity of Investors in Counterparty Funds (Doc. No. 357) Litvak has filed a Motion in limine seeking to exclude "any evidence about the identity of any of the investors in the funds managed by Mr. Litvak’s counterparties, including, but not limited to, the federal government." Mem. of Law in Supp. of Def.’s Mot. in limine to Exclude Evidence about the Identity of Investors in Counterparty Funds at 2 ("Def.’s Investor Identity Mem.") (Doc. No. 357-1). In this same Motion, Litvak also asks the court to strike "surplusage" in the Indictment "relating to the identity of investors in the counterparty funds." Id. at 9. The government filed an Opposition to Litvak’s Motion, see Gov’t’s Opp. to Def.’s Mot. in limine to Exclude Evidence of Alleged Victims’ Investors ("Gov’t’s Investor Identity Opp.") (Doc. No. 386), to which Litvak timely replied, see Jesse C. Litvak’s Reply in Supp. of the Mot. in limine to Exclude Evidence about the Identity of Investors in Counterparty Funds ("Def.’s Investor Identity Reply") (Doc. No. 409). The parties argued their respective positions on this Motion during the oral 7 A80 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 24 of 33 befell them by taking additional actions. The court agrees with the parties that this is the line that must be drawn pursuant to the principles of law outlined above, as well as Rules 401 and 403 of the Federal Rules of Evidence. In light of the foregoing, the court grants the government’s Motion to the extent that Motion sought to preclude Litvak from offering evidence or making argument about what government witnesses should have done, and denies the Motion to the extent it sought to preclude Litvak from offering evidence or making argument about what government witnesses did and reasonable investors do. F. Government’s Motion in limine to Preclude Evidence Regarding Other Broker-Dealers (Doc. No. 372) The government has filed a Motion in limine seeking "an order precluding the defendant... from introducing evidence or argument regarding events or practices at broker-dealer firms other than Jefferies, absent some factual link to Litvak." Gov’t’s Mot. in limine to Preclude Evidence Regarding Other Broker-Dealers ("Gov’t’s Other Broker-Dealers Mot.") (Doc. No. 372). Litvak filed an Opposition to the government’s Motion, see Jesse C. Litvak’s Opp. to Gov’t’s Mot. in limine to Preclude Evidence Regarding Other Broker-Dealers ("Def.’s Other Broker-Dealers Opp.") (Doc. No. 392), to which the government timely replied, see Gov’t’s Reply Mem. in Supp. of its Mot. in limine to Preclude Evidence Regarding Other Broker-Dealers ("Gov’t’s Other Broker-Dealers Reply") (Doc. No. 405). The parties argued their respective positions on this Motion during the oral argument held on June 16, 2016. See Minute Entry (Doc. No. 430). For the reasons that follow, the court now grants in part and denies in part the government’s Motion. In their briefing and again at oral argument, the parties represented that the evidence that is the subject of this Motion in limine falls into three categories: (1) 24 A81 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 25 of 33 evidence that counterparties knew they were being lied to by traders like Litvak, or that counterparties "switched hats" from being investors to being broker-dealers and themselves engaged in the kinds of misrepresentations Litvak allegedly made; (2) evidence related to an "industry practice" of making misrepresentations of the kind Litvak is alleged to have made to counterparties; and (3) evidence related to changes companies in the industry made to their training and compliance programs after Litvak was indicted. See Def.’s Other Broker-Dealers Opp. at 1-2 (Doc. No. 392); Gov’t’s Other Broker-Dealers Reply at 2 (Doc. No. 405). Although the government has stated that Litvak believes the aforementioned categories of evidence "somehow bear on materiality or intent," Gov’t’s Other Broker-Dealers Mot. at 1 (Doc. No. 372), Litvak himself suggests that the evidence at issue is most relevant to the element of materiality, see Def.’s Other Broker-Dealers Opp. at 3 (Doc. No. 392). The court will consider each of these categories separately and in turn. The first category of evidence primarily relates to statements by government witnesses that tend to suggest they were aware of, and did not care about, misrepresentations of the kind allegedly made by Litvak.8 This evidence is highly relevant to the question of whether Litvak’s alleged misrepresentations would have been material to a reasonable investor, and is therefore admissible under Rule 401. This evidence is also significantly more probative than prejudicial, confusing, or misleading, and therefore should not be excluded under Rule 403. At oral argument, 8 It bears emphasizing that this analysis is predicated on the assumption that the evidence at issue will show that the government witnesses knew or suspected they were being lied to, and indicated in some manner that that fact was not important or significant to them. Evidence that shows simply that Litvak or other traders lied to the counterparties or similarly situated individuals on other occasions does not fall within the scope of this analysis; such evidence falls within "category two," discussed infra at 26. 25 A82 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 26 of 33 the parties appeared largely to agree that this evidence should be admitted for the reasons described above. The second category of evidence relates to the "industry practice of making misrepresentations to customers about price." Def.’s Other Broker-Dealers Opp. at 2 (Doc. No. 392) (quoting the government). In his briefing, Litvak appears to suggest that this evidence is comprised of "[f]act testimony from some of the investors interviewed by the government" that "they were aware of the'industry practice’" of making misrepresentations of the kind charged in Litvak’s Indictment. Id. If this is, in fact, all the evidence that Litvak wishes to offer of an industry practice, the court would admit this evidence for the reasons described in the analysis with respect to the first category of evidence at issue in this Motion: the court concurs with Litvak that evidence that investors similarly situated to the counterparties in this case were aware that traders similarly situated to Litvak made misrepresentations of the kind Litvak is alleged to have made and were indifferent to that fact (or discounted the information provided by traders on that basis) is relevant to the materiality of the misrepresentations charged in the Indictment. This is because, as noted at multiple points above, materiality is judged by an objective standard, from the perspective of a reasonable investor. See Litvak, 808 F.3d at 175, 184. Fact testimony from other investors that they were aware of, and did not care about, misrepresentations like the ones charged in the Indictment could tend to show that an objective, reasonable investor would not view such misrepresentations as material. Any possibility that information about investors other than the counterparties in this case could confuse the issues or mislead the jury is outweighed by the probative 26 A83 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 27 of 33 value of the information discussed. For these reasons, this evidence is admissible under Rule 401 and is not amenable to exclusion under Rule 403. However, the government appears to think that, notwithstanding Litvak’s representations in his briefing, the evidence Litvak seeks to introduce under the auspices of "category two" is not limited to evidence that other investors were aware of, and were indifferent to, misrepresentations of the kind charged in the Indictment. In its briefing, the government suggests that Litvak will seek to introduce evidence about actions and events at firms other than Jefferies. See Gov’t’s Other Broker-Dealers Mot. at 2 (Doc. No. 372). In other words, the government appears to think that Litvak may attempt to introduce evidence that other broker-dealers similarly situated to Litvak at companies other than Jefferies made the same kinds of misrepresentations Litvak is alleged to have made. To the extent Litvak made any argument about the relevance of such evidence in his briefing or at oral argument on this Motion, his response would appear to be that evidence of an "industry practice" as established by testimony regarding the actions of other broker-dealers is relevant because the fact that the whole industry engaged in these kinds of misrepresentations makes it less likely that reasonable investors would rely on this information. The problem with Litvak’s argument is that he skips a necessary, logical step: the fact that many (or all) RMBS broker-dealers engaged in the kinds of misrepresentations charged in the Indictment does not affect the likelihood of a reasonable investor viewing those misrepresentations as material9 (or immaterial) 9 This section discusses the question of whether evidence of the kind described above is relevant to materiality, because Litvak has represented that materiality is the element of securities fraud to which this evidence relates. However, some of this evidence could also, at least arguably, be relevant to the 27 A84 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 28 of 33 unless investors were aware that traders made these kinds of misrepresentations. Put another way, the fact that people in Litvak’s position regularly lied does not tend to make it more likely that objective, reasonable investors viewed those lies as immaterial unless there is also reason to believe those same reasonable investors were aware the lies were happening. For this reason, the court will exclude as irrelevant under Rule 401 evidence that broker-dealers at firms other than Jefferies regularly engaged in misrepresentations of the kind charged in the Indictment unless the defense can connect those misrepresentations to knowledge by investors. Even if statements by other broker-dealers that they regularly engaged in the kinds of misrepresentations charged in the Indictment were relevant within the meaning of Rule 401, however, the court would exclude that evidence as confusing, misleading, and prejudicial under Rule 403. At the end of the day, this case is about Jesse Litvak. It is not a trial of the entire RMBS industry, and while some evidence about the RMBS industry is relevant and not outweighed by Rule 403 factors, not all evidence about the RMBS market is such. There is little probative value to evidence that tends to show that the whole RMBS industry engaged in the kind of conduct for which Litvak has been indicted (again, absent some showing that investors were aware of the fact that broker-dealers regularly engaged in this conduct), and the presentation of this evidence bears element of intent. See Litvak, 808 F.3d at 188-190 (stating that evidence that Litvak’s supervisors were aware other broker-dealers at Jefferies engaged in the kind of conduct charged in the Indictment could support an argument that Litvak lacked intent to defraud). To the extent that Litvak will seek to introduce evidence of the conduct of broker-dealers at companies other than Jefferies to support an argument that he lacked an intent to defraud, the court would likely find that evidence to be marginally relevant within the meaning of Rule 401. However, given that the probative value of evidence of the conduct of broker-dealers at firms other than Jefferies—if there is no evidence that Litvak was actually aware of this conduct—appears exceedingly slight, and the risk that the introduction of this evidence will cause undue delay, confuse the issues, mislead the jury, and prejudice the government is high, see discussion infra at 29-30, the court would exclude this evidence under Rule 403. 28 A85 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 29 of 33 an enormous risk of confusing and misleading the jury with respect to the task before them. The introduction of such evidence would also prejudice the government and cause undue delay because, as the government notes, it will be forced to litigate "a'trial within a trial’ with regard to other traders’ fraudulent conduct." Gov’t’s Other Broker-Dealers Reply at 4 (Doc. No. 405). For all of these reasons, the court concludes that the probative value of evidence that there was an "industry practice"10 of making the kinds of misrepresentations charged in the Indictment is "substantially outweighed" by the risk that evidence will cause "unfair prejudice, confus[e] the issues, mislead[] the jury, [cause] undue delay, [and] wast[e] time," Fed. R. Evid. 403, and therefore will exclude that evidence. The third category of evidence relates to "changes that dealers have made to training and compliance programs in recent years in response to the charges the government filed in this case." Def.’s Other Broker-Dealers Opp. at 2 (Doc. No. 392). Litvak has represented that two of his experts "may opine about these changes," including "changes in compliance programs that have been reported about in connection with the Nomura case." Id. At oral argument, Litvak contended that this evidence is relevant because it tends to show that the kinds of misrepresentations charged in the Indictment weren’t viewed as being significant by people in the industry until Litvak was indicted. According to Litvak, the fact that these kinds of training and 10 At oral argument, Litvak expressly disavowed any intention to raise an "everybody did it" defense, which means that this Ruling should have little bearing on Litvak’s trial strategy. As the text of this section should make clear, the court has endeavored to draw a line between evidence that could be relevant to materiality or intent (e.g., evidence that Jefferies had a standard operating procedure of condoning conduct like Litvak’s, or evidence that investors were aware that broker-dealers regularly engaged in such conduct) with evidence that is only relevant to a defense based on the alleged fact that many other broker-dealers engaged in this conduct, too (i.e., evidence that other broker-dealers regularly lied to investors). 29 A86 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 30 of 33 compliance programs were established after Litvak’s Indictment is relevant to the question of whether misrepresentations like the ones charged in the Indictment were viewed by people in the industry as being material before Litvak’s Indictment. For substantially the same reasons articulated in connection with the court’s analysis of "category two" evidence, the court disagrees. As noted in the preceding section, the court does not view the actions and beliefs of other broker-dealers similarly situated to Litvak to be relevant within the meaning of Rule 401 on the element of materiality, because that element does not ask what kinds of statements an objective, reasonable broker-dealer would view as being material, but rather what an objective, reasonable investor would view as being material. Thus, evidence that tends to show that other broker-dealers also engaged in the kind of conduct alleged in Litvak’s Indictment—whether that evidence takes the form of direct testimony from other broker-dealers or the more attenuated form of evidence about compliance programs instituted by these companies after Litvak was indicted—is simply not relevant unless accompanied by evidence that investors were aware of these misrepresentations. Thus, the court will exclude this evidence under Rule 401. Even if this evidence was marginally relevant, however, the court would exclude it under Rule 403. Evidence about compliance programs instituted after Litvak was indicted at firms other than Jefferies is disconnected both factually and temporally from the conduct at issue in this lawsuit. Its probative value, if any, is marginal. But this same evidence carries a high risk of confusing the issues, misleading the jury, and causing delay, for the reasons explained above with respect to "category two" evidence. 30 A87 Case 3:13-cr-00019-JCH Document 432 Filed 06/28/16 Page 31 of 33 Because the probative value of the evidence is substantially outweighed by these other factors, the court will also exclude the evidence pursuant to Rule 403. In sum, the government’s Motion in limine is granted in part and denied in part. The Motion is denied to the extent the government sought to preclude evidence related to whether counterparty witnesses or investors similarly situated to counterparty witnesses viewed misrepresentations like the ones charged in the Indictment as material. Some of this evidence may bear on whether there was an "industry practice" of broker-dealers making the kinds of misrepresentations charged in the Indictment, but again, such evidence must come from the perspective of investors, given that the element of materiality is assessed from the perspective of an objective, reasonable investor. The Motion is granted to the extent the government sought to preclude evidence related to misrepresentations by other broker-dealers at companies other than Jefferies, so long as this evidence is not either (1) factually connected to Litvak (i.e., that he was aware of these misrepresentations in a way that could bear on the element of intent), or (2) supported by evidence that specific investors were aware of these misrepresentations (which could be relevant to the element of materiality). III. CONCLUSION For the foregoing reasons, the court grants in part and denies in part the pending Motions in limine as follows: Litvak’s Agent/Broker Motion (Doc. No. 356) is GRANTED IN PART and DENIED IN PART. The government will not be permitted to offer evidence or argument intended to show that, as a matter of fact and law, Litvak was actually the agent of his counterparties, but the government’s witnesses are permitted to testify, on the basis of 31 A88 1 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 5, 2017 4 Government)9:15 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY ONE OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 16 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 A89 193 1 that separately. 2 Q. This is what you are asking him to do when you say 3 put the bonds in the chat provide this information? 4 A. Yes. Provide this information. If we're the only 5 two in the chat, it wouldn't have been to my team. 6 Q. You say you can get your guys started on them. Who 7 are your guys? 8 A. So we have analysts who spend the day analyzing the 9 bonds that we're looking to buy or sell. 10 Q. Let's talk about this analysis. We're going to take 11 a break from this document. We'll come back to it. 12 Tell us about the analysis that AllianceBernstein 13 does this four analysts? 14 A. So in analyzing a RMBS bond, basically what you were 15 trying to do is to forecast how many folks--how many of the 16 mortgages inside of the bond, how many of those folks are 17 going to keep paying on their mortgage, how many of them are 18 going to prepay their mortgage. And how many of them might 19 default and through doing all of that, we come up with, you 20 know, a forecast of what the price and yield would look like 21 under different scenarios. 22 Q. Explain to us how you go about doing that. 23 A. So we have a quantitative model that basically means 24 that we try to use what we know about borrowers and history, 25 their FICO scores which is just a credit score, how much A90 194 1 their house is worth relative to their mortgage or what we 2 call the loan to value and we look at the history of all of 3 that, and we did a lot of mathematical analysis to see how 4 that leads, what percentage of times that leads to somebody 5 prepaying their mortgage, continuing to pay or defaulting. 6 Q. And these models I assume it is not like a physical 7 model so what does that word "model" mean? 8 A. It means big mathematical equations. 9 Q. Where do you get those? 10 A. We have hired, you know, people who specialize in 11 doing that to analyze the historical data and trends, you 12 know, people defaulting and prepaying to develop these 13 forecasting tools or modeling tools. 14 Q. Now, this is--you said "we," this is 15 AllianceBernstein done this? 16 A. Yes. 17 Q. So does it share--does AllianceBernstein share its 18 analysis techniques and models in the industry? 19 A. No. 20 Q. Do you share them with Mr. Litvak or did you? 21 A. We might share occasionally some of the results but 22 not the details of the interworkings of it, but we might 23 share some of it. Just in terms of like it is helpful for 24 him to understand what kind of bonds we want to buy versus 25 don't want to buy. A91 195 1 Q. So what's the result of for instance these 2 particular five bonds, you were going to have your guys get 3 started on them. What's the output of all of this work, this 4 analysis for AllianceBernstein? 5 A. Typically it is a matrix of prices that we could 6 potentially buy it at and different resulting yields under 7 different scenarios. That's typically the output, if you 8 will. 9 Q. Why are you doing all of this? 10 A. Because we want to buy bonds that are going to 11 perform the best that, you know, there's a lot of bonds to 12 choose from, and we want to pick bonds that we think are 13 going to fundamentally have the best mortgage borrowers in 14 them. We want to know what the right price is to pay for 15 those bonds. 16 Q. So Mr. Litvak is showing five bonds, would 17 AllianceBernstein necessarily be interested in buying all 18 five of these? 19 A. Not necessarily, no. 20 Q. How does modeling help AllianceBernstein, analysis 21 of AllianceBernstein decide which bonds it wants to buy? 22 A. So we do this analysis. We also have something we 23 call the fundamental score card where we would look at all 24 the different mortgages were and ranked the whole universe of 25 RMBS bonds into quartile, and that helped us sort it out so A92 196 1 we would focus on bonds that were in our upper quartile. 2 Q. What's the point of picking certain bonds to be 3 interested in? What's the ultimate goal of the all of this 4 analysis? 5 A. To get the best results for our investors, to get 6 the best yield, and the best returns and make the most money 7 we could. 8 Q. This block that I highlighted the time stamp is 9 14:55:55. It continues onto the next page, not as a block, 10 but Mr. Litvak continues to write. He writes I think these 11 levels are spot on within maybe half a point, pt, these 12 levels are still four to five points off the high as we saw 13 in early Jan whereas hybrids and fixed are at/through those 14 highs and then right now, he writes right now I'm only 15 showing these to you. That first thing he wrote about these 16 levels being spot-on. Can you translate that for us? 17 A. I think what he's saying is the offers on the bonds 18 that you were just showing, he thinks that those offers are 19 at the market level. Meaning where transactions have been 20 taking place recently. 21 Q. Let me go bark to that. It is a little hard on the 22 eyes when it is all yellow. I will unhighlight it. I want 23 to talk about the block that I zoomed in on the screen. 24 I will pick the HVMLT0610 bond that you had been 25 writing about with Mr. Litvak earlier. What is the A93 216 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 6, 2017 4 Government)9:07 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY TWO OF TRIAL 10 (WITH SEALED PORTION) 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 A94 305 1 own profitability, it is trading as a principal? 2 A. Yes. 3 Q. And when a broker dealer is acting as a principal, 4 it makes money off the difference between what they can buy a 5 bond for and what they can sell a bond for; is that correct? 6 A. Yes. 7 Q. There's no separate commission charge in those 8 circumstances? 9 A. No. It's in the price. 10 Q. It is all markup? 11 A. Yes. 12 Q. In fact, markup and dealer profit are used somewhat 13 interchangeably? 14 A. That's fair. 15 Q. In those situations, the markup is fully embedded in 16 the total price you pay? 17 A. Yes. 18 Q. There are no separate charges? 19 A. That's right. 20 Q. One price to the fund includes whatever profit the 21 dealer is making? 22 A. That's right. 23 Q. As a dealer, you are going to buy at one price and 24 sell at a higher price? 25 A. That's right. A95 306 1 Q. And in order trades, for example, like HarborView 2 2006 and LXS 2007, it is okay for the dealer to quote you a 3 price that is higher than it might be able to buy the bond 4 from its seller? 5 A. Sure. 6 Q. That's how the dealers make money off of what you 7 call the spread? 8 A. Yes. 9 Q. In order trades, it is pretty much normal practice 10 for a dealer to quote a higher price than he can actually buy 11 the bond for so he can make profit? 12 A. Yes. 13 Q. Each and every time that you purchase bonds from 14 Jefferies, Jefferies was trading on its own account? 15 A. I wouldn't know that. That was my assumption, but I 16 wouldn't know it. 17 MR. BUTSWINKAS: Your Honor, may I approach the 18 witness? 19 THE COURT: Yes, you may. 20 MR. BUTSWINKAS: Thank you. I don't think I need 21 to. Could you put up, Andrew, just for identification 22 purposes Exhibit 2088, please. 23 BY MR. BUTSWINKAS: 24 Q. Mr. Canter, you have given testimony before relating 25 to this case, have you not? A96 307 1 A. I have. 2 Q. Sworn testimony? 3 A. Yes. 4 Q. Where you were under oath? 5 A. Yes. 6 Q. Let me direct your attention to page 505 of this 7 document. Starting at line 22. If you can follow along with 8 me. Were you asked this question and did you give this 9 answer? Question: And you understood when you were dealing 10 with Jefferies, each and every time on each trade in this 11 case, that Jefferies was trading for its own account as a 12 principal on the dealer side of the house, right? 13 Do you see that question? 14 A. Yes. 15 Q. And you answered yes; isn't that true? 16 A. Yes. 17 Q. Not on broker side, correct, sir? 18 A. Say again. 19 Q. Not on the broker side? 20 A. No. 21 Q. You said that your standard practice is to pay the 22 broker dealer--at one point you said 4 to 8 ticks and 23 another time you said 4 ticks. Do you want to clarify that? 24 A. Four ticks on the bid list was a standard number. 25 We didn't really have a standard number on order trades. A97 308 1 Could be zero, could be 4. That was typical. Sometimes it 2 was a little bit higher in order trades. 3 Q. Was this a written agreement that you had with 4 broker dealers? 5 A. No. 6 Q. I didn't see it any of the electronic chats that the 7 Government showed you. Was it in the some electronic 8 communication that you had with Mr. Litvak? 9 A. No. 10 Q. I think you testified yesterday that this was an 11 agreement that you had with the broker dealers that were 12 approved by AllianceBernstein to do work with them; is that 13 right? 14 A. It was with the larger dealers. I don't know that 15 we had the agreement with every single dealer. Some of them 16 are quite small that we didn't do a lot of business with. 17 Q. And is this standard agreement for pricing with 18 these broker dealers in these multi-million dollar 19 transactions written down someplace? 20 A. No. 21 Q. You said you talked to Mr. Litvak about this 22 agreement, but not by electronic chat; is that right? 23 A. Yes. 24 Q. When did you that talk to him about it? 25 A. I think when we first launched the fund. A98 309 1 Q. The first time you saw Mr. Litvak was at a--I 2 think you said at a conference? 3 A. Yes. 4 Q. And you spoke to him there for less than 10 minutes; 5 isn't that right? 6 A. No. 7 Q. Did you talk to him about this standard agreement 8 then? 9 A. I don't recall. 10 Q. Then another time you were at a dinner with 11 Mr. Litvak and a bunch of people; is that right? 12 A. I don't know what you are referring to. 13 Q. Did you--you don't remember any dinners with him? 14 A. I did have dinner with him, but I don't know what 15 you're--16 Q. Did you talk to them about the standard agreement at 17 a dinner that you had? 18 A. I don't remember. 19 Q. Was it on the phone or in person? 20 A. When we talked about this? 21 Q. Yes. 22 A. I don't remember. 23 Q. And there isn't any document that the jurors could 24 look at to see that agreement in writing, am I correct about 25 that? A99 310 1 A. Yes. 2 Q. So the dealer brings you a bond that it bought at 3 one price and sells to you at a higher price? That's the 4 process? 5 MR. FRANCIS: Objection. Asked and answered. 6 THE COURT: I will allow it. It sounds like he's 7 starting again. 8 THE WITNESS: Yes. 9 BY MR. BUTSWINKAS: 10 Q. That's how they get paid? 11 A. Yes. 12 Q. That's not a commission? 13 A. Technically, no. 14 Q. You're familiar with an organization called SIFMA, 15 are you not? 16 A. I am. 17 Q. S-I-F-M-A, right? 18 A. Yes. 19 Q. It stands for what? 20 A. Off the top of my head, I'm not sure. 21 Q. Do you remember the name Securities Industry 22 Financial Markets Association? 23 A. Yes. 24 Q. It is a trade association in your industry? 25 A. Yes. A100 326 1 A. Yes. 2 Q. You are trying not to buy under that yield bogey, as 3 I think you testified earlier? 4 A. That's right. 5 Q. On the three bonds that are this board over here 6 that I have written, none of them were bought at below your 7 yield bogey, were they? 8 A. I don't believe so, no. 9 Q. The HarborView 2006 purchase that you made from 10 Jesse met your yield bogey, didn't it? 11 A. It did. 12 Q. The LXS 2007 bond that you bought from Jesse met 13 your yield bogey? 14 A. Yes. 15 Q. And the HarborView 2007 bond met your yield bogey? 16 A. Yes. 17 Q. As part of your investment strategy at 18 AllianceBernstein, you used quantitative forecasting? 19 A. Yes. 20 Q. And you combine your quantitative forecasts with 21 what you call fundamental research? 22 A. Yes. 23 Q. Would you tell the jury what fundamental research 24 is? 25 A. Sure. So the quantitative analysis deals much more A101 327 1 with analyzing historical data, and the fundamental analysis 2 would deal more with looking at softer things, not hard data 3 necessarily, so some of it is, but things like who the 4 servicer is on the bond, meaning what company is interacting 5 with the actual homeowners, what states the different 6 borrowers are in. And we may views about which states are 7 better to have risk in, meaning would we rather be exposed to 8 homeowners in California or Florida. And that may not be 9 reflected in the quantitative analysis, so we developed a 10 view different than--that's our fundamental view different 11 than the quantitative hard data analysis. 12 Q. The reason that you combine your quantitative 13 forecasts with your fundamental research is to exploit 14 inefficiencies in the fixed income market? 15 A. Yes. 16 Q. And you hold yourself as having a research style 17 that is bottom up; is that correct? 18 A. Not solely, but yes. 19 Q. What does that mean? 20 A. Which part? 21 Q. Research style that is bottom up? 22 A. It means that we're looking at--when we look at 23 bonds, we're looking at them individually and we're analyzing 24 them individually. We're not just looking at, okay, which 25 way are housing prices going. That would be sort of top A102 328 1 down. This is bottom ups. We're looking at each individual 2 bond, you know, sort of individually. 3 Q. Your bottom up research is influenced by what you 4 just referred to the top down research? 5 A. Yes. 6 Q. That's work that's done by your macroeconomic 7 research group; is that right? 8 A. Yes. 9 Q. And others? 10 A. And others. 11 Q. Your investment process relies heavily on 12 proprietary research; is that correct? 13 A. Yes. 14 Q. Research that generates investment returns? 15 A. We hope so. 16 Q. And the process begins with the proprietary expected 17 return forecast? 18 A. Yes. 19 Q. And that comes from your quantitative research team; 20 is that correct? 21 A. I'm not sure that they necessarily--would 22 necessarily come from the quantitative team. 23 Q. They are involved in that? 24 A. So the quantitative team builds a model that helps 25 us forecast, and then the fundamental team determines how A103 329 1 exactly to use that in our analysis that gets us to our end 2 sort of result of what we think of the bond. 3 Q. It allows you to narrow your focus? 4 A. Yes. 5 Q. And identified securities that appear to be the most 6 or the least attractive? 7 A. Yes. 8 Q. And that is built on? You don't stop there, right? 9 Strike that. 10 You don't stop there, do you? There's more work 11 that's done? 12 A. I'm sorry. You have to--stop where? 13 Q. Let me ask it this way. You just described a lot of 14 work to the jury that you do and you build on that work by 15 more in-depth analysis by your fundamental research teams? 16 A. Yes. 17 Q. And those teams focus on forecasting forward-looking 18 expected returns? 19 A. Yes. 20 Q. Which either confirm or refute your quantitative 21 model findings? 22 A. Yes. 23 Q. So you're double checking your work? 24 A. I wouldn't call it double checking. 25 Q. What do you do when it refutes your model findings? A104 330 1 A. It's just part of the process. I don't--it--we 2--we look at both quantitative and fundamental and try to 3 make the best decision we can on any one bond. 4 Q. You are trying to see if whether those two separate 5 analyses are consistent with one other, right? 6 A. Correct. 7 Q. You are looking to see does one conflict with the 8 other and does the other conflict with the first, right? 9 A. Yes, that's right. 10 Q. You are trying to see consistency because that will 11 help you in your judgment? 12 A. Right. So if we have quantitative and fundamental 13 both pointing in the right direction, that's better than if 14 we have the two disciplines, if you will, on opposite 15 sides. 16 Q. So after the quantitative forecast and after the 17 fundamental forecast, you have the monthly research review 18 sessions? 19 A. When you say--are you referring to 20 AllianceBernstein in general or--21 Q. I'm talking about the meetings of your most senior 22 research and portfolio management professionals have regular 23 meetings. 24 A. That's true, but was not true for the PPIP team. 25 Q. Didn't you tell your Government--didn't you tell A105 331 1 the Government that that's the way the process worked? 2 A. That was the way the process worked until the PPIP 3 team was walled off into a separate unit. 4 Q. So at the time you proposed this program to the 5 Government, that's how it worked? 6 A. Yes. 7 Q. You also have a portfolio management team, right? 8 A. Yes. 9 Q. And they make some final research 10 recommendations from all the work that you described? 11 A. The research team makes research recommendations and 12 the portfolio management teams decides how to implement those 13 recommendations. 14 Q. They turned all of that into an appropriate 15 portfolio risk target? 16 A. Yes. 17 Q. They do this with the use of proprietary portfolio, 18 what you all call optimization tools? 19 A. Again, I'm not sure that applied to the PPIP fund 20 once it got started. 21 Q. Let me direct your attention, if I may, to 22 Defendant's Exhibit 2137, which is already in evidence. Page 23 459, please. Let me direct your attention to the to the 24 paragraphs--Andrew, if you can blow that up for me, please. 25 And the paragraph just above that. I'm sorry. My mistake, A106 406 1 Q. Okay. Let's talk about HarborView 2007. Another 2 guy at AllianceBernstein actually had the discussions with 3 Mr. Litvak about that bond, right, not you? 4 A. Yeah. 5 Q. That was Mr. Schick? 6 A. Yes. 7 Q. And did Mr. Schick have any in-person meetings with 8 Mr. Litvak about that bond? 9 A. Not while that negotiation was going on, no. 10 Q. Did Mr. Schick have any phone conversations with 11 Mr. Litvak? 12 A. I don't know. 13 Q. If he did, you don't know what was said? 14 A. Correct. 15 Q. And you weren't--you didn't say anything in the 16 chats that Mr. Litvak had with Mr. Schick about the 17 HarborView 2007 bond, did you? 18 A. Not that I saw. 19 Q. And the total markup on that bond was also less than 20 1 percent, wasn't it? 21 A. Again, I'm--I just don't have these facts 22 committed to memory. 23 Q. The total price that AllianceBernstein paid on all 24 three of these bonds was supported by your internal 25 analytics? A107 407 1 A. Yes. 2 Q. The total price that you paid on all three of these 3 bonds was consistent with what your independent judgment told 4 you was a good price? 5 A. Yes. 6 Q. And consistent with what your internal pricing 7 analysis had told you was a good price? 8 A. Good and met our yield bogey. 9 Q. And you had a lot of information that you looked at 10 to determine that the prices you paid for these three bonds 11 were good prices? 12 A. Yes. 13 Q. In terms of your independent judgment and your 14 internal analytics, you don't feel you overpaid for these 15 bonds? 16 A. I don't feel I overpaid in terms of--that the 17 analytics supported those prices, no. 18 Q. And regardless of anything that Jesse said to you 19 with respect to any of these three bonds, none of these bids 20 you believed were too high to pay for that bond on that day; 21 isn't that right? 22 A. That's true. 23 Q. And ultimately, AllianceBernstein bought these bonds 24 because you liked the bonds and you liked the price? 25 A. Yes. A108 408 1 Q. And on each of those bonds, you paid less than the 2 maximum amount that you would have been prepared to pay? 3 A. I don't recall. 4 Q. Perhaps? 5 A. Perhaps. 6 Q. What was the maximum price you were prepared to pay 7 for HarborView 2006? 8 A. I don't recall. 9 Q. How about LXS 2007? 10 A. I don't recall. 11 Q. How about HarborView 2007? 12 A. I don't recall. 13 Q. In your many meetings with the Government, did you 14 see any document that the jury could look at if they wanted 15 to know the answer to that question? 16 A. I don't think so, no. 17 Q. What were really talking about here is not that you 18 didn't get a good price but that a larger slice of the total 19 price went to Jefferies than you thought at the time? 20 A. Yes. 21 Q. And less went to the company that sold Jefferies the 22 bond than you thought at the time? 23 A. Or less AllianceBernstein, depending on how you look 24 at it. 25 Q. Whether you could have bought at some lower price A109 409 1 from Jefferies, you have no idea? 2 A. On these three particular trades? 3 Q. Yes, sir. 4 A. That's correct. 5 Q. For example, on a BWIC trade like HarborView 2007, 6 if Jesse had just put in your bid as opposed to a lower bid, 7 you would have got the bond, added the same markup and paid 8 exactly what you paid? 9 A. I'm sorry. I think I need to correct my answer. I 10 forgot that the last bond listed there was a bid list bond. 11 So I--my view would be on a bid list bond that--I don't 12 know for certain that I could have gotten it at a better 13 price, but it is likely that I could have if I had bid 14 through somebody who was being honest with me. 15 Q. It is possible, but you are not sure? 16 A. Unless that person was being dishonest--17 Q. Can you answer the question I posed to you? If 18 Jesse had just put in your bid as you expected him to do, you 19 would have got the bond at that bid price? 20 A. Correct. 21 Q. And you would have added the same number of ticks 22 that you added? 23 A. Correct. 24 Q. You would be in the identical situation that you are 25 in today? A110 410 1 A. Yes. 2 Q. The concern about putting in a lower bid is that you 3 might lose the bond, right? If he puts in a bud that is too 4 low, the bond might slip away? 5 A. Right, and that's not what we asked him to do. 6 Q. That didn't happen? The bond didn't slip away? 7 A. Maybe not that particular one. 8 Q. On ones we're talking about here, the bond didn't 9 slip away, did it? 10 A. No. 11 Q. Nothing about the investment performance of these 12 three bonds changed at all given what you later learned about 13 Jefferies' actual acquisition cost; isn't that right? 14 A. That's right. 15 Q. Those new facts had no direct impact on the fund as 16 of the trade date; isn't that right? 17 A. That's right. 18 Q. The total price that AllianceBernstein paid on all 19 three bonds was a price that your internal analytics told 20 you was in the best interest of the fund? 21 A. Yes. 22 Q. The total price you paid for all three bonds was a 23 price that your judgment told you was in the best interest of 24 the fund? 25 A. Yes. A111 411 1 Q. Otherwise, you be wouldn't have bought them at these 2 total prices? 3 A. Fair enough. 4 Q. You still believe today that the total prices you 5 paid for these bonds were in the best interest of your fund 6 to pay? 7 A. Yes, given what I knew, yes. 8 Q. On the day of each of those purchases, you satisfied 9 yourself that the total price Jefferies was selling to you at 10 was the best available price for those bonds that day? 11 A. I did. 12 Q. In terms of best execution, the price that you got 13 was the best available for that day for those three bonds? 14 A. I don't know that for certain. I know that we would 15 have checked to see if that was the case, but it is possible 16 that transactions happened in the marketplace that we weren't 17 aware of. 18 Q. Sitting here today looking back, solely in terms on 19 the price, you would buy all three of these bonds at the same 20 total price that you paid then? 21 A. Yes. 22 Q. But you have to be cautious, don't you, about 23 information that you get in the marketplace? 24 A. You mean from dealers? 25 Q. For example. A112 412 1 A. Yes. 2 Q. Especially information that is unverified? 3 A. Sure. 4 Q. You have to be careful not to give it undue weight 5 in your analysis; is that fair? 6 A. In the analysis part of it, yes. 7 Q. And you try not to overrule your internal analysis 8 with information that you can't verify, right? 9 A. The internal analysis doesn't really deal with what 10 the market price is or is not. The internal analysis deals 11 with what our return to the investors may be. It doesn't 12 deal with what the going market price is. 13 Q. Let me ask the question more directly. Isn't it 14 correct that at the time period when you were interacting 15 with Mr. Litvak, you knew that there were negotiating tactics 16 in the market that shaded the truth? 17 A. Sure. 18 Q. And so, therefore, you were especially careful when 19 you were weighing information that you got that could not be 20 verified? 21 A. Sure. 22 Q. That makes perfect sense for a reasonable investor 23 of your type? 24 A. Yes. 25 Q. For these qualified institutional buyers, that is A113 413 1 how sophisticated investors like that think about these 2 questions? 3 A. Sure. 4 Q. And you had prior instance, I think you talked about 5 on direct, when a trader had been misleading to you about 6 their profit margin? 7 A. Yes. 8 Q. So you knew incidences like that were out there in 9 this market? 10 A. I do. 11 Q. For example, in March of 2010, you learned that a 12 trader at Caprock had misled you about the profit that they 13 were making on a trade? 14 A. Yes. 15 Q. And so that type of experience informs your judgment 16 as you go forward as a buyer and seller in the RMBS market; 17 is that true? 18 A. I'm not sure. I think I had that impression before 19 that experience. 20 Q. I'm sorry, sir? 21 A. I believe I had that impression before the 22 experience with Caprock. 23 Q. So you didn't even need to have that extra 24 experience to already know I better have my antenna up? 25 A. Correct. A114 414 1 Q. I better be careful about volunteered information? 2 A. Yes. 3 Q. I better view it with skepticism? 4 A. Yes. 5 Q. You knew, for example, that at the time you were 6 buying bonds from Jesse there was a tactic that some traders 7 used calling backing up bids? 8 A. Yes. 9 Q. And that's a practice where the trader takes your 10 bid, puts in a lower bid to try to get the bond for lower so 11 it can make extra profit? 12 A. Yes. 13 Q. And that practice was something that you knew about 14 being in existence in the RMBS market when you were 15 negotiating with Jesse? 16 A. I knew it existed. 17 Q. And when the traders did this, the concern is that 18 if they go in with too low a bid trying to make extra money 19 for themselves, they might lose the bond? 20 A. Right. 21 Q. We know that didn't happen here on the HarborView 22 2007 bond because you got the bond? 23 A. Yes. 24 Q. Now, there are a lot of--I think you alluded to 25 this earlier. This market has its own language? A115 424 1 alliance. 2 Q. Explain why. 3 A. Because at this--at the date of this Bloomberg 4 chat, we were liquidating the PPIP fund so we were no longer 5 in the process of buying a lot of bonds, we were in the 6 process of selling the bonds and returning all the money to 7 investors and the Treasury Department. And so higher prices 8 when you are selling--when you are interested in selling 9 more than buying, higher prices are good. 10 Q. One form of color that sometimes gets disseminated 11 in this market is called cover; is that right? 12 A. Yes. 13 Q. When a bidder wins an action, for example, the price 14 that they won the auction at is usually not disclosed in the 15 market? 16 A. Yeah, usually not, but sometimes it is. 17 Q. But the second place bid often is? 18 A. It certainly--it is--I don't think it is as much 19 anymore, but back then I think it was more often. 20 Q. And that second bid is called cover? 21 A. Yes. 22 Q. You have heard the phrase "false cover"? 23 A. I don't--that particular phrase, I don't think is 24 sort of market lingo. 25 Q. You understand what it refers to? A116 425 1 A. Yes, yes. 2 Q. Explain to the jury what it refers to. 3 A. When--after an auction occurs, the seller of the 4 auction can release through Bloomberg messages to the dealers 5 some commentary about what the second place bid was, and they 6 can then turn around and release that information to all of 7 the potential customers out there. And if they do that, if 8 they are not straightforward about that, I guess you can use 9 the term false, but I think it is usually not very--it's 10 usually not precise cover, sometimes it is released. 11 Q. When it is precise cover, it is a lie about what the 12 second place price was? 13 A. I don't think I have heard that term before, but 14 what you are saying makes sense. 15 Q. There were instances that you are aware of that when 16 an auction is completed, people in this market have 17 disseminated cover prices that were false? 18 A. Yes. 19 Q. That happens from time to time? 20 A. Sure. 21 Q. It happened a lot back then? 22 A. Again, I don't know how often it happens, but it 23 certainly happened and people are aware about it and talk 24 about it. 25 Q. One reason that happen is because there might be a A117 426 1 significant gap between the winning bid price and the second 2 place price, right? 3 A. Yes, that's one reason. 4 Q. And so in those instances, someone might lie about 5 the second place price to make it seem like the first place 6 price was an accurate price for that bond, right? 7 A. Yes. 8 Q. That's the idea? 9 A. I think that happens, yes. 10 Q. Sellers, for example, out there, they don't want the 11 second place price that was way down here released because it 12 makes them look like idiots for buying way up here, right? 13 A. Yeah, and typically it is when the dealers buy the 14 bond for their own inventory that they are sensitive to that 15 because they eventually need to turn around and sell it. And 16 so that's usually why the sensitivity occurs. 17 Q. So that false second place bid price is being used 18 to buck up that other purchase price in the market, right? 19 A. I wouldn't use that wording, but it's there to--20 again, if it is--if you put out second place commentary, 21 you may do it in a way that makes it easier for the dealer to 22 eventually sell the bond. 23 Q. There's a lot of false pricing information out and 24 about in this market, isn't there, or there was back then? 25 A. I think that's right. A118 475 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 9, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY THREE OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 A119 514 1 Q. Where they are trying to figure out what's the 2 accurate price for this particular bond? 3 A. Right. 4 Q. And they will also reach out into the market, just 5 as you said York does, to broker-dealers and other market 6 participants to get pricing information on that particular 7 bond? 8 A. Correct. 9 Q. They will assess all of that information 10 independently and provide it to York; is that right? 11 A. Yes. 12 Q. On a monthly basis? 13 A. Yes. 14 Q. On each bond in the portfolio? 15 A. Yes. 16 Q. So that means for the DSLA bond, that was done 17 monthly for every month that you had owned that bond? 18 A. Yes. 19 Q. And obviously, since, as you said you--on direct 20 you have this duty to your investors, it's super important 21 that those pricing calculations be as accurate as possible? 22 A. Yes. 23 Q. In fact, in all the decisions that you make at York, 24 you want to make sure, to the best of your ability, that you 25 are making the decisions on reliable information? A120 515 1 A. Yes. 2 Q. You try to double check your work? 3 A. Yes. 4 Q. And verify what you are doing? 5 A. Yes. 6 Q. You don't want to give undue weight to information 7 that you can't verify, for example? 8 A. We do the best that we can. 9 Q. Now, the most recent mark on the DSLA bond at the 10 time you were negotiating with Mr. Litvak was 54? 11 A. Um-hum. 12 Q. Is that right? 13 A. I think so. 14 Q. That mark would have come at the end of the prior 15 month? 16 A. Yes. 17 Q. So just about a week earlier, the company had done 18 all of the things that you described that it does to price 19 that bond, and it priced it at 54? 20 A. Yes. 21 Q. That would mean internally looking at all of the 22 information that you just described, right? 23 A. Yes. 24 Q. Then externally, turning to a third-party pricing 25 company to figure out what's the price at which that bond A121 518 1 Q. And York holds itself out, as I think you described, 2 to its investors as a sophisticated investor? 3 A. Yes. 4 Q. It holds itself out to its investors as having a 5 sophisticated ability to analyze distressed assets? 6 A. Yes. 7 Q. Like residential mortgage-backed securities? 8 A. Yes. 9 Q. And York is, if you know, a qualified institutional 10 buyer? 11 A. Yes. 12 Q. Could you explain to the jury what that is? 13 A. It means that we are considered sophisticated enough 14 to make investment decisions about complicated securities and 15 bonds and stocks, that sort of thing. 16 Q. I'm sorry, I didn't mean to interrupt you. To do 17 that independently based on your expertise and experience? 18 A. Yes. 19 Q. And York holds itself out to its investors as having 20 an edge in independent research? 21 A. Yes. 22 Q. It relies for its investment decisions on 23 quantitative research? 24 A. Yes. 25 Q. And qualitative research? A122 519 1 A. Yes. 2 Q. To make informed independent investment judgments? 3 A. Yes. 4 Q. About what to buy? 5 A. Um-hum, yes. 6 Q. About what to sell? 7 A. Yes. 8 Q. How much to buy it for? 9 A. Yes. 10 Q. And how much to sell it for? 11 A. Yes. 12 MR. BUTSWINKAS: I would like to show just for 13 identification purposes just to Ms. Corso Defendant's 2114. 14 May I approach the witness? I want to give her a hard copy. 15 THE COURT: You may. 16 BY MR. BUTSWINKAS: 17 Q. Ms. Corso, I'm giving a hard copy and ask you if you 18 can look through it and then identify it? 19 A. Sure. This is a market document for the York Credit 20 Opportunities Fund. 21 Q. Do you see the date is December 2009? 22 A. Yes. 23 MR. BUTSWINKAS: Your Honor, I offer Defendant's 24 Exhibit 2114. 25 MS. CHERRY: No objection. A123 520 1 THE COURT: 2114 is a full exhibit. 2 BY MR. BUTSWINKAS: 3 Q. Ms. Corso, how is a document like this used? 4 A. It is distributed to our investors or potential 5 invest--potential and current investors. 6 Q. For what purpose? 7 A. To solicit investments in our fund. 8 Q. Let me turn you to page 14 in that. It will come up 9 on the screen. You don't have to use a hard copy, but you 10 are able to if you prefer. There's a description of the 11 investment process at York Capital. Have you seen this 12 before? 13 A. Yes. 14 Q. It starts out with idea generation. Do you see that 15 on the left? 16 A. Yes. 17 Q. And I take it that the things in the box under idea 18 generation are things that York talks about when it is 19 soliciting investors? 20 A. Yes. 21 Q. Like being able to track financial events, for 22 example? 23 A. Yes. 24 Q. And having extensive industry knowledge, for 25 example? A124 521 1 A. Yes. 2 Q. And keeping up with a trade journals and the 3 industry news letters? 4 A. Yes. 5 Q. Then the second step in investment process is idea 6 analysis. 7 A. Yes. 8 Q. And under that are the things that York focuses on 9 for that stage in the investment process; is that right? 10 A. Yes. 11 Q. For example, having expertise in valuation? 12 A. Yes. 13 Q. And what is margin of safety? 14 A. Margin of safety would be understanding your 15 risk/reward. If you are going to buy something, you wouldn't 16 want to buy something that could go to zero. You would want 17 to buy something that you feel comfortable owning. 18 Q. Being careful about what you buy? 19 A. Yes. 20 Q. And then third is maintaining an expertise in the 21 industry that you might be investing in? 22 A. Yes. 23 Q. Analyzing it carefully? 24 A. Yes. 25 Q. And then scenario analysis decision tree, would you A125 522 1 explain what that is? 2 A. Understanding your investments, assuming different 3 scenarios play out for better or for worse. 4 Q. So it's part of the analysis that goes into 5 investment judgment? 6 A. Yes. 7 Q. And that's a sophisticated process, isn't it, at 8 York? 9 A. Yes. 10 Q. It involves computer modeling, for example? 11 A. Yes. 12 Q. Internal analytics? 13 A. Yes. 14 Q. The company looks at a mountain of data before it 15 makes judgment about what to invest? 16 A. Yes. 17 Q. It looks at a mountain of data before it decides 18 what price it will buy something at, for example? 19 A. Yes. 20 Q. It looks at a mountain of data before it decides 21 what price it will sell something at? 22 A. Yes. 23 Q. And then at the bottom of this idea analysis, it has 24 liquidity analysis. Would you explain what that is? 25 A. I would say it is just understanding, you know, A126 523 1 where you can buy and sell something. 2 Q. The next stage in the investment process at York is 3 called idea refinement. Do you see that? 4 A. Yes. 5 Q. Would you explain what that is? Let me ask the 6 question more specifically. The first bullet point is 7 identify catalyst/trade timing. What does it mean by trade 8 timing? 9 A. York tends to be--a lot of our investments are 10 geared towards an event. So that's what that means. Buying 11 something with the idea of an event happening. 12 Q. Making sure that timing is an important component of 13 the equation? 14 A. Usually. It's an event-driven trade. 15 Q. And the identify risk/reward. We talked about that 16 a little bit already. And then third is relative versus 17 absolute value. Will you explain to the jury what that 18 means? 19 A. Relative value means if you are looking at two 20 different bonds and identifying which one is more attractive 21 than the other. Absolute value is looking at an investment 22 on its own. 23 Q. So as in the residential mortgage-backed securities 24 area, it means looking at Bond A versus Bond C (sic) and Bond 25 C? A127 540 1 know of that would shed any light on what those 2 communications were or weren't? 3 A. I'm sorry, I don't. 4 Q. The price of 61 on the DSLA bond was in line with 5 York's internal analytics; is that correct? 6 A. Yes. 7 Q. It was in line with your analysis of the curves? 8 A. I think so. 9 Q. If the levels that Jesse had suggested were too low, 10 you would have just passed on the sale? 11 A. Yes. 12 Q. You had--you and your colleagues had complete 13 control over that decision? 14 A. Yes. 15 Q. And the price of 61 was consistent with what the 16 internal analytics were telling you was a good price? 17 A. Yes. 18 Q. Consistent with what your curves were telling you 19 was a good price? 20 A. Yes. 21 Q. You used, I think you said earlier, a number of 22 different broker-dealers; is that right? 23 A. Yes. 24 Q. More than 10? 25 A. I don't know. A128 541 1 Q. This is the only trade you ever did with Jesse? 2 A. I think so. 3 Q. So you didn't know him particularly well, for 4 example? 5 A. No. 6 Q. I take it there are plenty of traders out there that 7 you had traded with multiple times? 8 A. We didn't do a lot of trading. 9 Q. So maybe not? 10 A. Maybe not. 11 Q. And when you found out that Jesse had marked up in 12 his sale to his purchaser different than he had told you, you 13 said that you might be willing to work with him again if he 14 worked his way back into your good graces? 15 A. In so many words, yes. 16 Q. And any profit margin to Jefferies on that bond came 17 from its sale in the other transaction, right? 18 A. Yes. 19 Q. So no part of the proceeds of your sale of that bond 20 to Jefferies went to any fees or any costs? 21 A. No. 22 Q. Or any ticks? 23 A. Any what? 24 Q. Ticks. 25 A. No. A129 542 1 Q. No part of this internal profit was any kind of 2 charge-back back to York? 3 A. No. 4 Q. You were paid exactly what you were told you would 5 be paid, 61? 6 A. Yes. 7 Q. And when Jefferies acquires a bond, it bears the 8 risk of what happens with that bond? 9 A. Yes. 10 Q. For example, if this other transaction falls 11 through, that's Jefferies' problem? 12 A. Yes. 13 Q. That can happen? 14 A. Yes. 15 Q. When Jefferies buys a bond, it owns it as a 16 principal? 17 A. Yes. 18 Q. It can hold it or sell it? 19 A. Yes. 20 Q. It is entitled to every cent of the profit it earns 21 if it sells it? 22 A. Yes. 23 Q. And I take it that if Jesse had said I have a place 24 in my inventory for this bond and I will buy it from you at 25 61 and that's my bottom line, you would have sold it? A130 543 1 A. Yes. 2 MS. CHERRY: Objection. 3 THE COURT: Basis? 4 MS. CHERRY: Calls for speculation. 5 THE COURT: I will allow the answer to stand. 6 BY MR. BUTSWINKAS: 7 Q. I take it that if the price of 61 has not been 8 consistent with the internal analytics, you would not have 9 done the trade? 10 A. Correct. 11 Q. If your price of 61 was not consistent with the 12 fundamentals of the bond as you saw them, you would not have 13 done the trade? 14 A. Correct. 15 Q. You thought trading at 61 was in the best interest 16 of your investors? 17 A. Correct. 18 Q. And that was based on all of the work that you have 19 described? 20 A. Yes. 21 Q. At the time you were deciding to sell, you knew that 22 York was carrying the bond on its books as a price of 54? 23 A. Yes. 24 Q. That was a factor that played into this analysis--25 A. Yes. A131 544 1 Q.--about whether to sell and at that price? 2 A. Yes. 3 Q. At the time you were deciding to sell, you knew what 4 the financial impact on York would be if you consummated the 5 sale? 6 A. Yes. 7 Q. And that was a factor in your analysis of whether to 8 sell? 9 A. I think ultimately, you know, where the bond is 10 marked is not as relevant to the price you are going to sell 11 it because you might not agree with the mark. 12 Q. Did you express any disagreement with the mark to 13 any of your people at York? 14 A. I don't remember. 15 Q. Because you said it is important, as you said 16 earlier, that those marks be accurate? 17 A. Yes. 18 Q. And if there's somebody with your expertise that 19 thinks the mark is wrong, then you have to speak up? 20 A. Yes. 21 Q. You don't remember doing that? 22 A. No. 23 Q. Now, what was your bottom line price? 24 A. Can you repeat the question? 25 Q. What was your bottom line price on the DSLA price? A132 545 1 A. My bottom line price? 2 Q. Yes. 3 A. What do you mean by that? 4 Q. Would you have sold it for 60? 5 A. I don't know. 6 Q. Would you have sold it in the 50s? 7 A. I don't think so. 8 Q. Is there a document that would have the answer to 9 that question for the jury? 10 A. I don't know, but the e-mail exchange posted earlier 11 suggested that I was interested in selling it at a 60 area to 12 low 60s price. 13 Q. You mean the e-mail that Mr. Litvak sent you? 14 A. Yes. 15 Q. Where you said perfect? 16 A. Yes. 17 Q. Would there have been a document that existed that 18 would have shown the range of prices that were acceptable to 19 you? 20 A. It probably existed, but I don't know if it exists 21 today. 22 Q. But there probably was a document that showed that 23 at one point in time? 24 A. Yes. 25 Q. When you finished this sell--sorry. Let me start A133 546 1 that again. 2 When you completed the sale to Jefferies at 61, you 3 thought that was a great price? 4 A. Yes. 5 Q. And you shared quickly the terms of that sale with 6 your colleagues? 7 A. I think so. 8 Q. Like Mr. Vrattos? 9 A. Yes, I think so. 10 Q. I am sure I'm going to mess this up. 11 Ms. Manischewitz? 12 A. Yes. 13 Q. Is that right? 14 A. You go it. 15 Q. Who is Mr. Vrattos? 16 A. He is the portfolio manager of the fund, of the 17 Credit Opportunities Fund. 18 Q. Ms. Manischewitz, who is she? 19 A. She's another partner of the firm. 20 Q. And Mr. Wachtel who we saw earlier, you shared the 21 information about the sale with him? 22 A. I think so. 23 MR. BUTSWINKAS: Your Honor, I would like to put on 24 the screen just for identification purposes and draw the 25 Court's attention to this document as well, Defendant's A134 697 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 10, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY FOUR OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 A135 735 1 what your bottom line is? 2 A. When I don't know the other side--when I don't let 3 the other side know what my bottom line is. Bottom line 4 meaning what? 5 Q. The maximum price at which you are willing to 6 purchase. 7 A. Not until the very end. Yeah. That's fair. There 8 is a lot of instances where I wouldn't let the counter-party 9 know what my maximum price is that I'm willing to pay. 10 Q. That's a pretty basic negotiation strategy? 11 A. It is one of the basic negotiation strategies. 12 Q. And buyers obviously want to, as you said, pay less? 13 A. Buyers would want to pay less. 14 Q. And the party across the table, the seller, they 15 always want you to pay more? 16 A. They would always want me to pay more, correct. 17 Q. Their interests across the table are not aligned 18 with one another? 19 A. They are not aligned, no. 20 Q. I take it you have to have a level of skepticism as 21 you go through these negotiations? 22 A. I do have, yeah. 23 Q. Especially about volunteered information, for 24 example? 25 A. About any information, I would say, communicated to A136 736 1 you. 2 Q. There's a general perception in the RMBS market that 3 it can be less than truthful at that time? 4 A. What could be less than truthful? 5 Q. Information that is exchanged. 6 A. Sorry. Can you repeat that? 7 Q. Yes, sir. During that period of time when you were 8 at Magnetar, I am just going to focus on 2009 to 2011, there 9 was a general perception in the market that there was a lot 10 of information out there that was less than truthful? 11 A. That some information could be less than truthful, 12 yes. 13 Q. That's one of the reasons why you approach these 14 negotiations with skepticism? 15 A. That would be one of the reasons, yes. 16 MR. BUTSWINKAS: No further questions, Your Honor. 17 THE COURT: Brief redirect. 18 REDIRECT EXAMINATION 19 BY MS. CHERRY: 20 Q. Mr. Lemin, good morning. 21 A. Hello. 22 Q. You were asked about Magnetar's proprietary models. 23 Do you remember that? 24 A. Yes. 25 Q. Mr. Butswinkas just asked you. A137 697 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 10, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY FOUR OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 A138 741 1 THE COURT: Mr. Norris, yes. Mr. Norris, sir, if 2 you would come up to the witness stand area. It's just to my 3 left where I'm pointing. When you arrive, I'd ask if you'd 4 remain standing. The clerk here is going to administer an 5 oath to you. Thank you. 6 BRIAN NORRIS, 7 having been called as a witness, was first duly sworn and 8 testified on his/her oath as follows: 9 THE WITNESS: I do. 10 THE CLERK: Please state your name, spell your last 11 name, and give your city and state of residence. 12 THE WITNESS: Brian Norris, N-O-R-R-I-S. 13 Louisville, Kentucky. 14 THE COURT: You may be seated, sir, and good morning 15 to you. 16 THE WITNESS: Good morning. 17 THE COURT: Whenever you're ready, Attorney Cherry. 18 MS. CHERRY: Thank you. 19 DIRECT EXAMINATION 20 BY MS. CHERRY: 21 Q. Good morning, Mr. Norris. 22 A. Good morning. 23 Q. If you can please tell the jury where you work. 24 A. I work at Invesco Advisors in Louisville, Kentucky. 25 Q. And what is Invesco Advisors? A139 742 1 A. It's an investment management firm. Our clients 2 hire us to invest in the financial market for them. 3 Q. And what is your title at Invesco? 4 A. Senior portfolio manager. 5 Q. What do you do there? 6 A. So in our office in Louisville, the portfolio 7 managers have dual roles. The first of which is as a 8 portfolio manager we kind of oversee the investments of the 9 funds that are assigned to us. So we oversee them to ensure 10 that they are in line with client expectations as well as our 11 own strategy at the time. And then secondarily, we also 12 serve as traders for specific sectors of the market that we 13 focus on. 14 Q. And how long have you been there? 15 A. Since March of 2001. 16 Q. Can you give the jury a little bit of your 17 educational background? 18 A. Sure. I went to the University of Louisville. I 19 graduated with a finance degree in 1998. I worked for a 20 smaller firm in Louisville after that for a few years before 21 moving on to Invesco in 2001. And also have the charter 22 financial analyst designation, which I achieved roughly, say, 23 12 years ago. 24 Q. Who are the types of investors in the Invesco 25 fund? A140 743 1 A. It's mostly what we call institutional investors, so 2 pension plans and 401(k) plans, banks, insurance companies, 3 government entities. We also do have a little bit of high 4 net worth as well, so individuals, but mostly institutional 5 assets. 6 Q. And did you trade non-agency RMBS bonds as part of 7 your role in Invesco? 8 A. Yes, I do. 9 Q. And do you use broker-dealers to trade the RMBS 10 bonds? 11 A. Yes. 12 Q. About how many broker-dealers do you use? 13 A. In a typical year, we'll transact with up to 30 14 different broker-dealers. 15 Q. Can you describe the criteria or the way that you 16 choose what broker-dealers to work with? 17 A. Sure. So Invesco proper has a department that will 18 analyze broker-dealers both for their--you know, their 19 financial statements to ensure that they are worthy 20 counter-parties for Invesco, as well as any kind of 21 regulatory issues. Usually our compliance or legal 22 department will look into that just to make sure there's 23 nothing in the way of regulatory issues that could prevent 24 them from finishing a transaction with us. So Invesco proper 25 will do that analysis. A141 744 1 We'll get a list of, you know, 100 different firms 2 that we could trade with. Then once it gets to my desk, 3 we'll look at the firms that are--you know, that we think 4 have expertise in the sectors that we're trading, first that 5 we can trust and firms that are kind of active in the markets 6 that we're active in. 7 Q. You said "we" will look at. Who is "we"? 8 A. My group in the Louisville office. We have 18 9 different people in our--what we call our structured 10 securities group in Louisville. 11 Q. Did you execute trades with the broker-dealer 12 Jefferies? 13 A. Yes, we have. 14 Q. And who would you work with at Jefferies? 15 A. Typically, what we do is each client such as Invesco 16 would be assigned a salesperson by the broker-dealer. So 17 typically who I work with is the salesperson that is 18 assigned to our account. And then there are also instances 19 that we will deal directly with a trader of a particular 20 security. 21 Q. So have you dealt directly with Mr. Litvak when you 22 traded? 23 A. Yes. Yes, I have. 24 Q. How frequently did you trade with Mr. Litvak? 25 A. Not very frequently. Jefferies wasn't one of our A142 745 1 top firms that we dealt with. Again, like I said, out of our 2 say up to 30 that we transact with on a given year, Jefferies 3 is generally around 15th or so--15 to 20 place. 4 MS. CHERRY: Your Honor, I would like to offer 5 Exhibit 43B. 6 THE COURT: Any objection to 43B? 7 MR. BUTSWINKAS: No, Your Honor. 8 THE COURT: 43B is a full exhibit and may be 9 published. 10 BY MS. CHERRY: 11 Q. Mr. Norris, can you tell us what this document is? 12 A. It is a transcript of Bloomberg messages between 13 myself and Mr. Litvak on July 1, 2010. 14 Q. And is there a reason why you used--why you used 15 Bloomberg message and you don't always use the phone? 16 A. I like to use Bloomberg messages because--or 17 messages in general just because it kind of tracks the 18 conversation. You know, we're typically dealing with a lot 19 of different firms at one time, so, you know, talking on the 20 phone kind of also makes you rely on your memory and 21 sometimes that can be a little bit more difficult to track. 22 So using messages is a little more efficient. 23 Q. I'm going to go to the second page of this document. 24 Can you tell the jury what Mr. Litvak sent to you? 25 A. Yes. It is a list of bid lists for that particular A143 746 1 day. 2 Q. And what's a bid list? 3 A. A bid list is a kind of an auction process that 4 sellers of bonds will send out with a specific time that they 5 want the bid or the buying price back by. So it is a way for 6 sellers to show their bonds to a large group of people to 7 ensure they get the best price that's available. 8 Q. And there's a whole lot of bonds on this list. How 9 does Invesco decide which bonds it might be interested in? 10 A. It's a bit of a two-step process. As portfolio 11 manager, it is my job to know the types of bonds that we're 12 looking at on that particular day or for a particular 13 strategy. So I can look through the list of bonds and, you 14 know, whittle it down a little bit to then where I send that 15 list of bonds to our credit research team that will take a 16 look and analyze whether it is a good fit for our portfolios. 17 Q. The information you get back from the credit 18 research team, what do you do with that information? 19 A. So they'll run the bonds through their various 20 models. And what that does is it--then they have a report 21 that they send back to me for each specific bond that we're 22 interested in. That report will show various characteristics 23 of the bond that I may be interested in as a trader. And one 24 of those is kind a price and yield table that shows us what 25 the yield on--or the return on that been bond would be at A144 747 1 various price points. 2 Q. This price yield table, how do you decide where on 3 the price yield table to buy a bond for? 4 A. We'll do quite a bit of work before we bid a bond to 5 determine where we think it will trade. And so, you know, 6 once we have an idea of where we think the bond will trade or 7 where it is available to buy, we'll then try to buy it or try 8 to send in a price that--to buy it as cheaply as we can. 9 Q. Going to start on the bottom of the first page. At 10 15:15:21, what do you write to Mr. Litvak? 11 A. We can bid 79-24 on the SARM05-21 7A1. 12 Q. What does that mean? 13 A. That's the price that we are willing to pay for this 14 particular bond that's on a bid list for that day. 15 Q. It was on a bid list from the previous page? 16 A. I believe so, yes. 17 Q. Why don't we take a look? We look at the 3:00 p.m. 18 bid list. Is that the bond you were referring to? 19 A. Yes. 20 Q. So if we go back to the first page. How does 21 Mr. Litvak respond when you tell him you can bid 79-24 on the 22 SARM bond? 23 A. He responds, using, BRB. 24 Q. When you Mr. Litvak says "using," what do you think 25 he's going to do with the bid? A145 748 1 A. He's going to send that bid to the seller, the 79-24 2 bid as a price to try to buy the bond. 3 Q. So in this type of trade in this type of 4 transaction, is Jefferies taking a position on the same bond? 5 A. No. They serve--on a bid list, the broker-dealer 6 will just serve as an intermediary between two sellers. 7 Because the two sellers--I'm sorry. The two parties that 8 are selling and buying the bond don't know who is doing the 9 selling and buying, so we use a broker-dealer to serve as an 10 agent in between. 11 Q. So how would you describe Mr. Litvak's role? 12 A. As an agent. Agency trade. 13 Q. Going to move up. At 15:16:16, you tell Mr. Litvak, 14 thanks, got some room, too. Why would you share with 15 Mr. Litvak that you have got some room? 16 A. A couple different reasons. One, I know that the 17 bid that I sent him was for a 3:00 p.m. bond and I sent it 18 late. So for efficiency purposes, I let him know that it is 19 possible that I could pay more for the bond if necessary. So 20 if another buyer comes in at a higher price than mine, I just 21 want him to know that he can quickly come back to me and I 22 will be able to improve my bid to try to buy the bond. 23 Q. Is it unusual for you to share this type of 24 information? 25 A. I wouldn't say it is unusual. It is not something A146 749 1 that's done all the frequently. In this instance, obviously, 2 I did. You know, you kind of let somebody know that you feel 3 like you can trust that won't use that information against 4 you. So you know, if I don't need to improve my bid then I 5 don't want to, certainly. But again, for efficiency 6 purposes, just to let him know that he can quickly come back 7 to me and I will be able to pay a higher price. 8 Q. When you told him that you had room. To be clear, 9 how did you expect Mr. Litvak to use this information? 10 A. I expected him to keep it to himself and not to 11 share it with the seller until it becomes necessary for me to 12 improve. 13 Q. And if we move up to 15:20, Mr. Litvak tells you, 14 winner, bro. How do you read that? 15 A. That my 79-24 bid was the highest bid for that bond, 16 so we are buying it. 17 Q. He continues, he had two other guys that were at 79 18 and trying to improve, but he just sold them to us. Then 19 Mr. Litvak says, I bid your level. What does that mean? 20 A. That means that he used 79-24 as the bid that he 21 sent to the seller. 22 Q. And then he says, so we'll work for whatever you 23 want, big man. What do you understand that to mean? 24 A. That's kind of the beginning of the negotiation on 25 his commission for the trade, for the transaction itself. So A147 750 1 he's saying--you know, he bid it 79-24. So in order for 2 Jefferies to make any money serving as the intermediary, I 3 would then have to pay something on top of that price. 4 Q. Just going back to I bid your level. Could 5 Mr. Litvak have not bid your level? 6 A. There's two different ways that broker-dealers can 7 earn a commission on a transaction such as this. They can, 8 you know, bid our level, which is what happened here. Then 9 after the fact, I will negotiate a transaction or a 10 commission fee for them and I will pay slightly higher than 11 this. Or the second way to do it is to say, you know, I will 12 back up the bid. So they'll actually send a lower price to 13 the seller and their commission will be the difference 14 between that lower price and the price that I sent him. 15 Q. But in this transaction, your understanding was that 16 he did not back up the bid? 17 A. That's correct. 18 Q. Moving up at 15:24:38, you respond, wow, that was 19 fast, nice work. 6 ticks cool, 79-30 to me. How do you read 20 that? 21 A. Yes. So 6 ticks is my suggestion for the commission 22 for his service as the broker, and then I just added that 6 23 ticks to the 79-24 and said 79-30 to me, which would be the 24 price that Invesco pays. 25 Q. Back at--during this time frame in 2010, what was A148 751 1 the standard commission that Invesco would pay on these 2 BWIC-type trades? 3 A. In a formal circumstance, we would typically pay 4 between 4 and 8 ticks for a transaction such as this. 5 Q. So moving up, Mr. Litvak at 15:26 says, your timing 6 was perfect, 3:00 p.m. BWIC and he's good about trading 7 things fast. So we got in there right at the right time. 8 Good teamwork. 6/32 is a great. Thanks, BN. 9 When Mr. Litvak says 6/32 is great, how did you read 10 that? 11 A. He agrees to my suggestion for the commission of 6 12 ticks, 6/32. So we agree on that. 13 Q. Then he says, thanks, BN. Who is BN? 14 A. BN is my initials. 15 Q. I think you engage in some smalltalk. Is that 16 basically the end of the transaction? 17 A. Yes. 18 Q. And so what do you understand Mr. Litvak to be 19 buying the bond at? 20 A. Given all this information, we understand that 21 Mr. Litvak bought the bond at 79-24 and we are buying it at 22 79-30, and he's making 6 ticks as the commission. 23 Q. Would it have mattered to you if you had known that 24 Jefferies bought the bond for 79-16? 25 A. Yes, absolutely it would. A149 752 1 Q. Why would it have mattered to you? 2 A. Because then we could buy the bond cheaper for our 3 clients. 4 Q. Would you have knowingly paid 14 ticks of commission 5 on this trade? 6 A. It is highly unlikely we would pay that much on this 7 type of transaction. 8 Q. Would it have been important if you knew that Litvak 9 was making 14 ticks on this trade? 10 A. Yes, absolutely it would be important. 11 Q. Again, why would it be important? 12 A. Because it is significantly more than what we would 13 typically pay for this type of transaction, so it is more 14 money that our clients are paying for the bond. 15 Q. If I tell you the difference between 14 and 6 ticks 16 is about $73,000, does that change your answer? 17 A. No. That's significant. 18 Q. Why is that? 19 A. It is a significant amount of money for our clients 20 that we're paying on the top of what we could have paid. 21 Q. Thank you. I'm going to move on to another trade. 22 MS. CHERRY: I'd like to offer Exhibit 442D. 442D. 23 MR. BUTSWINKAS: No objection. 24 THE COURT: Full exhibit. It may be published. 25 BY MS. CHERRY: A150 753 1 Q. Can you see that, Mr. Norris? 2 A. Yes. 3 Q. What is this document? 4 A. It is another transcript of Bloomberg messages 5 between myself and Mr. Litvak on June 24, 2010. 6 Q. And what's the subject of the e-mail? 7 A. June 24 non-agency list. So it's another list of 8 bid lists for that day. 9 Q. So if we go down to the bottom. Is that a bid list? 10 A. Yes. There appears to be a couple different lists 11 on this screen shot, both for 2 p.m. 12 Q. At 14:17:04, what do you write? 13 A. FHASI07-AR1 A1 at $80. 14 Q. How do you read that? 15 A. That's--I am sending him a bid for that particular 16 bond that's on the bid list that day. 17 Q. Was that on the list? 18 A. Yes. It was on the 2 p.m. list. 19 Q. I can pull that up. Is it on the lower 2 p.m. list? 20 A. Yes. The second bond on the lower list. 21 Q. And how does Mr. Litvak respond to your bidding $80 22 on the FHASI bond? 23 A. With "K". I understood to be okay. 24 Q. Then at 14:19, how do you respond to Mr. Litvak? 25 A. I say, just realized it is late. Sorry about that. A151 754 1 Q. Then at 14:53, Mr. Litvak comes back to you and he 2 says, we bought 'em, big man. What's your understanding of 3 what he's saying there? 4 A. That we bought the bond. That Invesco bought the 5 bond, that our price was the highest price available. 6 Q. When he says "we," who do you think he's referring 7 to? 8 A. I guess--well, usually when we say "we" in the 9 context, it is he and I are buying it, so--10 Q. You don't know yet what price he bought it at? 11 A. No. 12 Q. Then he says 78-5 plus cover. What's that? 13 A. So 78--a plus is a half of a tick or a half a 32, 14 so 78 and 5 and a half ticks was the cover, and the cover is 15 the second best bid that was sent to the seller. 16 Q. So can we just go back to the plus again. So a plus 17 is smaller than a tick? 18 A. Yes, it is a half of a tick. 19 Q. It is like 1/64th? 20 A. Yes. 21 Q. And in your experience, people trade in such small 22 increments, including half a tick? 23 A. Sure. Fraction of ticks are commonly traded. 24 MS. CHERRY: I would like to offer Government's 25 Exhibit 442E, Your Honor. A152 755 1 THE COURT: Any objection? 2 MR. BUTSWINKAS: No objection, Your Honor. 3 THE COURT: 442E is a full exhibit. 4 BY MS. CHERRY: 5 Q. Mr. Norris, what is this? 6 A. This is a transcript of what we call Bloomberg chat, 7 which is an IB, Instant Bloomberg, between myself and 8 Mr. Litvak on June 24. 9 Q. And is June 24 the same date where we just looked at 10 your bid for the FHASI bond? 11 A. Yes. 12 Q. If I scroll down to 18:58:02, is this what 13 Mr. Litvak just told you in that Bloomberg message? 14 A. Yes, it is. 15 Q. How do you respond? 16 A. My response is, well, Rome wasn't built in a day. 17 Q. What does that mean? 18 A. It could be two different things. One is that the 19 bond was a relatively small position so it would take lots of 20 them to build a portfolio of bonds. The second 21 interpretation, I guess it could be that the cover itself, 22 the second best bid was a little bit further back from my bid 23 than I would have liked in a normal circumstance. 24 Q. What does that mean further back from your bid that 25 you would have liked? A153 756 1 A. It means that perhaps I could have bought the bond a 2 little bit cheaper than I did, because the second-best bid 3 was almost 2 points back of my bid. 4 Q. At 19:00:14, you asked Mr. Litvak, do you go in at 5 80 or back it up? Why would you ask him that? 6 A. So this is--you know, the start of the discussion 7 about his commission for the trade. Typically, this would be 8 discussed, you know, prior to the transaction or prior to the 9 bid list going final, but I think just in the interest of 10 time we didn't get a chance to discuss that prior to. 11 Q. Then Mr. Litvak responds, I bid 78-26 and quickly 12 says 79-26. LOL. How do you understand that? 13 A. I understand that to mean that he sent the price of 14 79-26 to the seller. The 78-26 was just a typo. 15 Q. And how much did you bid? 16 A. I sent him $80 even. 17 Q. And so would this be considered backing up a bid? 18 A. Yes. 19 Q. At this point, what do you think Mr. Litvak bid for 20 the bond? 21 A. 79-26. 22 Q. You respond, well, either way I get, but that was 23 ballsy. What do you mean by "ballsy"? 24 A. Generally if a broker-dealer is going to back up our 25 bid by a significant amount, that that conversation would A154 757 1 take place with myself beforehand just to ensure that I was 2 still comfortable with him doing that. But that--since 3 that didn't take place, I thought, well, that would be a 4 little strange. 5 Q. And Mr. Litvak replies, BBERG. What is that? 6 A. I took that to mean to check my Bloomberg messages. 7 MS. CHERRY: Your Honor, I would like to offer 8 Government's Exhibit 442F, please. 9 MR. BUTSWINKAS: No objection. 10 THE COURT: 442F is a full exhibit and may be 11 published. 12 BY MS. CHERRY: 13 Q. Mr. Norris, what is this exhibit? 14 A. This is a transcript of Bloomberg messages between 15 myself and Mr. Litvak. 16 Q. And what's the date? 17 A. June 24, 2010. 18 Q. That's the same date as when you bid on the FHASI 19 bond? 20 A. Yes. 21 Q. And looking at this message, what is it? Can you 22 tell the jury what it is, what he forwarded you? 23 A. It appears that he forwarded me the messages between 24 himself and the seller of this particular bond. 25 Q. Is that typical that he would forward this kind of A155 758 1 document to you? 2 A. No. Like I said before, buyers and sellers 3 generally don't know who the buyers and sellers are. That's 4 information that is typically kept at the broker-dealer level 5 and it is not shared with others. 6 Q. And before Mr. Litvak sent you this the document, 7 did you have any idea who the seller of the FHASI bond was? 8 A. No, I did not. 9 Q. Is there any way you could have figured out who the 10 seller was? 11 A. It is possible if, you know, there are--in a 12 mutual fund that's traded on the New York Stock Exchange, you 13 can see--with--like the previous quarter's holdings. So 14 I guess through some pretty exhaustive research you could 15 kind of see if the size of this bond matched up with a 16 particular mutual fund. But generally, it is not something 17 that we really concerns ourselves with. 18 Q. Do you typically know who the seller is? 19 A. No, no. 20 Q. If you look at the first message that was sent--21 that Mr. Litvak sent to Mr. Kienzle at 14:18:33. Does that 22 have any information about the FHASI bond? 23 A. Yes, it is the same bid list that we were looking at 24 previously, the second bond on the list. Shows that 25 Mr. Litvak sent him a 79-26 bid. A156 759 1 Q. Is that the amount that Mr. Litvak told you he bid 2 for the bond? 3 A. Yes. 4 Q. If you go up to 14:47 where Brian Kienzle sends a 5 message to Mr. Litvak saying, Jesse, you win. How much--6 does this refer to the FHASI bond? 7 A. Yes, it does. 8 Q. And--9 A. So the seller is telling Jesse that his bid was the 10 highest. 11 Q. What was the bid there? 12 A. 79-26. 13 Q. Is that what Mr. Litvak told you he bought the bond 14 for? 15 A. Yes. 16 Q. So your understanding is--your understanding of 17 the transaction is--I will take that back. 18 What do you understand--what did Invesco buy the 19 bond for? 20 A. Invesco is buying the Bond for $80 even. 21 Q. How much is Jefferies making on this trade? 22 A. Jefferies is making the difference between 80 and 23 79-26. That would be 6/32. 24 MS. CHERRY: I would like to offer Government's 25 Exhibit 441D. A157 760 1 THE COURT: Any objection? 2 MR. BUTSWINKAS: No objection, Your Honor. 3 THE COURT: All right. Exhibit 441D is a full 4 exhibit and may be published. 5 BY MS. CHERRY: 6 Q. On your right, Mr. Norris, 441D. Can you see that? 7 A. Yes. 8 Q. And what does that look like? 9 A. It is a transcript of Bloomberg messages between 10 Mr. Litvak and the seller, Brian Kienzle. 11 Q. What's the date? 12 A. June 24, 2010. 13 Q. And if you look at the bottom of this message, how 14 does this compare to the message that Mr. Litvak forwarded 15 you? 16 A. Yes. The bid on the second bond, the FHASI that I 17 bid on, is off by 2 ticks 79-26 versus 79-24. 18 Q. But everything on this list is exactly the same? 19 A. It appear--20 MR. BUTSWINKAS: Objection. Leading. 21 THE WITNESS: Sorry. 22 THE COURT: It is. 23 BY MS. CHERRY: 24 Q. Is there anything different? Is there anything else 25 different on this list? A158 761 1 A. Not that I can tell, no. 2 Q. If I move up on 442F and 441D, in both documents at 3 14:47:05, is there anything there that appears different? 4 A. Yes. Again, the bid that was sent is off by 2 5 ticks. 6 Q. Does anything else appear different to you on this 7 comparison? 8 A. It does not, no. 9 Q. Now, if you knew at the time that Mr. Litvak wasn't 10 telling you the truth about the bid, would that have been 11 important to you? 12 A. Absolutely. 13 Q. Why is that? 14 A. Well, going back to how we select brokers first, you 15 know, we believe that we only deal with broker-dealer that we 16 can trust during the transaction. And also, the difference 17 of 2 ticks is again--you know, it is more money that our 18 clients are having to pay for a particular bond. 19 Q. So to be clear, the bid on the document you got, how 20 much was that? 21 A. The document that I received, the bid was 79-26. 22 Q. And the bid on the document on the right, what is 23 that? 24 A. 79-24. 25 Q. And the difference is just 2 ticks. Does 2 ticks A159 762 1 matter? 2 A. Yes, it does. 3 Q. Why does 2 ticks matter? 4 MR. BUTSWINKAS: This has been asked and answered, 5 Your Honor. 6 THE COURT: I don't know exactly in this form. I 7 will allow it. 8 THE WITNESS: Two ticks for a bond investor is still 9 a significant amount of money and it's--you know, we're 10 always trying to buy bonds as cheaply as we can for our 11 clients. And so every tick matters, every fraction of a tick 12 matters. 13 BY MS. CHERRY: 14 Q. If I told you 2 ticks was only $276, does it still 15 matter? 16 A. Absolutely, it does. 17 Q. Why is that? 18 A. Again, not only is it more money that our clients 19 are buying--are paying for the bond, but it's also a matter 20 of trust between myself and the broker. 21 MS. CHERRY: May I have a minute, Your Honor? 22 THE COURT: You may. 23 MS. CHERRY: Thank you. No further questions, Your 24 Honor. 25 THE COURT: I guess we have an extra minute, ladies A160 763 1 and gentlemen, but I think we'll take our break. Counsel can 2 take the extra minute to get set up and be ready to go. You 3 are excused at this time until 11:30. Thank you very much. 4 And, sir, you also can step out, but you have to be 5 back by 11:30. Thank you very much. 6 (In the absence of the jury at 11:13 A.M.) 7 THE COURT: Everyone may be seated. Anything I need 8 to take up? 9 MR. BUTSWINKAS: Not from the defense, Your Honor. 10 THE COURT: Okay. We'll be back at 11:30 and we'll 11 start with the cross. Stand in recess. 12 (Whereupon, a recess was taken from 11:15 A.M. to 13 11:34 A.M.) 14 THE COURT: Ready to get the jury. 15 (In the presence of the jury at 11:34 A.M.) 16 THE COURT: Welcome back, ladies and gentlemen of 17 the jury. Everybody be seated. We're ready to begin the 18 cross-examination of the witness by defense counsel. 19 THE CLERK: Jurors are having a hard time hearing 20 counsel. 21 THE COURT: Attorney Butswinkas, if I can ask you to 22 keep your voice up so we can all hear you. Is the light on, 23 the green light? 24 MR. BUTSWINKAS: Yes. 25 THE COURT: Thank you very much. A161 764 1 MR. BUTSWINKAS: Thank you, Your Honor. 2 CROSS-EXAMINATION 3 BY MR. BUTSWINKAS: 4 Q. Mr. Norris, my name is Dane Butswinkas. I'm one of 5 the lawyers for Mr. Litvak. We have never met, have we? 6 A. No. 7 Q. You met with the Government to prepare for your 8 testimony, though? 9 A. Yes. 10 Q. A number of times? 11 A. A few times, yes. 12 Q. Before you bought the SARM bond--13 MR. BUTSWINKAS: Your Honor, may I approach before I 14 ask a question? 15 THE COURT: Yes. 16 MR. BUTSWINKAS: I want to write the name of the 17 bond on the easel so we know we're talking about the same 18 thing. 19 BY MR. BUTSWINKAS: 20 Q. I will ask you from here. You talked about on your 21 direct that you submitted a bid for this bond at 79-24; is 22 that right? 23 A. Yes. 24 Q. And that you had done your homework before you 25 decided that bid, I take it? A162 765 1 A. Yes. 2 Q. And that is based on your internal analytics; is 3 that right? 4 A. Yes. 5 Q. And whatever pricing color you can get from the 6 market? 7 A. Yes. 8 Q. And a mountain of other data points? 9 A. Yes. 10 Q. And Jesse had no influence on that bad of 79-24; 11 isn't that right? 12 THE COURT: Could everybody hear the question over 13 my sneezing? Maybe you should state it again. 14 BY MR. BUTSWINKAS: 15 Q. Jesse had no role in creating this bid of 79.24? 16 A. He did not. It is 79 dash 24, not dot 24. 17 Q. 79 dash. Thank you for that correction. So at the 18 time you made this bid, you were happy if this bid were 19 submitted in the BWIC 79-24? 20 A. Sorry. Say that one more time. 21 Q. At the time you submitted this bid to Jesse to 22 submit it to the BWIC, you were happy with that bid of 79-24? 23 A. Yes. 24 Q. You expected that if that bid prevails, 79-24, you 25 would pay 6 ticks on that? A163 766 1 A. That was negotiated after the fact, but that was 2 within the general range that we typically paid, yes. 3 Q. You had that expectation at the time you submitted 4 this bid at 79-24? 5 A. That we would pay a commission on top, yes. 6 Q. Like 6 ticks? 7 A. Yes. 8 Q. And so if Jesse had followed your instruction and 9 put in the bid of 79-24 that you authorized, you would have 10 paid 79-30? 11 A. Yes. 12 Q. Just like you did? 13 A. Yes. 14 Q. Now, Invesco has a list of approved broker-dealers, 15 I think you said? 16 A. That is correct, yes. 17 Q. And Jefferies was one of the worthy counter-parties 18 on that list? 19 A. Yes. 20 Q. And the broker-dealer is on the other side of these 21 transactions from you; is that right? 22 A. That's--yes, yes. 23 Q. As a counter-party? 24 A. Yes. 25 Q. And you negotiate principal-to-principal? A164 767 1 A. In a BWIC situation, they serve as the intermediary. 2 So we view that as an agency trade. 3 Q. Under PPIP, doesn't the broker have to be acting as 4 a principal? 5 A. Under PPIP. I guess--I'm not sure. 6 Q. Didn't you reach out to some of your broker-dealers 7 with forms that they had to fill out to make sure that they 8 knew they were acting as a principal and not an agent? 9 A. I don't recall doing that, no. 10 Q. Let me show to the witness for identification 11 purposes Defendant's Exhibit 2178. Mr. Norris, do you see 12 this document on your screen? 13 A. I see a message, yes. 14 Q. You see that below the line there's an e-mail from 15 you as original sender? 16 A. Yes. 17 Q. And do you see that at--goes to a broker-dealer? 18 A. Yes. 19 Q. And let me direct your attention to the second page. 20 This is a proposed certificate of PPIP compliance that you 21 sent to the broker-dealer, isn't it? 22 A. It appears to be that, yes. 23 Q. Does this refresh your recollection that you reached 24 out to broker-dealers to let them know that when they are 25 acting on your behalf under PPIP, they are acting as a A165 768 1 principal and not an agent? 2 A. Give me a second just to read it. That's what it 3 appears to be, yes. 4 MR. BUTSWINKAS: I offer Defendant's Exhibit 2178. 5 THE COURT: Any objection to 2178? 6 MS. CHERRY: Can we have a copy of the exhibit? 7 THE COURT: Sure. 8 MS. CHERRY: No objection, Your Honor. 9 THE COURT: All right. Then 2178 is a full exhibit 10 and may be published. 11 MR. BUTSWINKAS: If I may publish this with the 12 jury, please, on page 1. 13 BY MR. BUTSWINKAS: 14 Q. Mr. Norris, this is from August of 2009. 15 A. Okay. 16 Q. Do you see that? 17 A. Yes. 18 Q. During the PPIP program? 19 A. It is around that time, yes. I don't recall exactly 20 when it started, but--21 Q. Fair enough. You see your name as a original 22 sender, Brian Norris of Invesco? 23 A. Yes. 24 Q. And you say, please take a look at the attached and 25 let me know if this is something you could/would sign on a A166 769 1 quarterly basis for PPIP. Timely response requested. 2 Thanks. Did I read that correctly? 3 A. Yes, you did. 4 Q. If you can move to page 2 of this. This document 5 that you sent to the broker-dealer is called Quarterly 6 Certificate of PPIP Compliance, correct? 7 A. Yes. 8 Q. And the first thing you asked of the broker-dealer 9 is that he or she authorize--say that they are 10 authorized to execute the document in paragraph 1? 11 A. Yes. 12 Q. And then you say the broker-dealer is acting on its 13 own behalf as principal in all trades in non-agency RMBS or 14 CMBS. Do you see that? 15 A. I do see it, yes. 16 Q. That's the understanding that you had with 17 broker-dealers for the PPIP program? 18 A. It is not a document that I produced. I know I said 19--it appears that I sent it out, but it is not--I guess it 20 is not something that I recall or actually--you know, you 21 say "you," but it wasn't me, it was Invesco, from Compliance 22 and Legal. 23 Q. Fair enough. So from Compliance and Legal, their 24 point of view was these broker-dealers were acting as 25 principals and not agents? A167 770 1 A. That appears to be the case, yes. 2 Q. I want to talk about--strike that. 3 I want to ask you questions about the period leading 4 up to your 79-24 SARM bid. 5 A. Okay. 6 Q. Obviously, it is a long time ago, so if you can't 7 remember, you can just tell me. Before you bid, you knew the 8 prices that would meet your yield threshold? 9 A. Generally, the case, yes. When I was talking 10 earlier, our credit research team will send us the report 11 that shows, you know, that has the price and yield table on 12 it that will show the necessary yield and prices that equate 13 to those yields. 14 Q. I think that you said that your credit research team 15 would run through their various models? 16 A. Yes. 17 Q. And they would look at the various characteristics 18 of the bond? 19 A. Yes. 20 Q. Including price and yield? 21 A. The yield would be the output of the model, but 22 yes. 23 Q. And I think you described it as quite a lot of work? 24 A. It's--you know, they do a pretty exhaustive 25 analysis of the bond, yes. A168 771 1 Q. And I take it that if the price that you can buy the 2 bond at is below your yield target, you walk away? 3 A. The--I'm sorry. The price that I can buy the bond 4 at is below the yield? 5 Q. It doesn't--6 A. If the yield is below the target, then I don't buy 7 the bond. Not the price. 8 Q. Let me ask the question again. If the yield of the 9 bond you were about to buy at that price is below your yield 10 target, then you walk away? 11 A. That's correct. 12 Q. And the all-in price that you paid for the SARM bond 13 was comfortably within your yield target? 14 A. That is correct. 15 Q. In fact, a price above 80 would have been 16 comfortably within your yield target? 17 A. I don't know that offhand, no. 18 Q. 79-24 was not the maximum you were willing to pay 19 for the SARM bond, was it? 20 A. That's correct. 21 Q. And you don't know as you sit here today what the 22 maximum you were willing to pay was? 23 A. No, I do not. 24 Q. In your preparation for your testimony, you didn't 25 see any documents that you can signal us to that would have A169 772 1 that on it? 2 A. The credit research team's report would have that 3 information on it. 4 Q. And we know that 79-24 was not as high as you were 5 willing to go because you said, as you pointed out earlier, I 6 got some room? 7 A. That's correct. 8 Q. And when you bought the SARM bond at 79-30 total 9 price, to your knowledge it was not available to you at a 10 better price than what you bought it for in the market? 11 A. To my knowledge now, I know that it was. I could 12 have potentially gone to a different broker-dealer to buy the 13 bond cheaper. 14 Q. Had you reached out to any broker-dealers to see if 15 you can get that bond at the time, do you remember? 16 A. Well, generally on a bid list you would only go to 17 one broker-dealer to send your bid in. 18 Q. So you had not? 19 A. I don't recall, but generally that's not the case. 20 Q. And you remember there was a financial crisis in 21 2008? 22 A. Yes. 23 Q. And the value of--strike that. 24 The pricing of the residential mortgage-backed 25 securities declined? A170 773 1 A. Yes. 2 Q. Dramatically in many instances? 3 A. Yes. 4 Q. And bonds were being sold at discounts? 5 A. That's correct. 6 Q. And in 2009 through '10, Invesco was looking to 7 uncover value in the RMBS market? 8 A. Yes. 9 Q. Invesco thought the market was undervaluing RMBS; is 10 that correct? 11 A. We felt that the prices had fallen too far for what 12 was the value of the bonds, yes. 13 Q. Invesco wanted to take advantage of these 14 discounts? 15 A. We wanted to invest in the sector, yes. 16 Q. You thought that the prices at which you could 17 purchase these bonds did not actually reflect the value of 18 the bond itself? 19 A. That's correct. 20 Q. And Invesco was not interested in participating in 21 short-term fluctuations in the market, right? 22 A. Generally, we tend to be long-term investors. We 23 don't try to transact quickly in and out of positions. That 24 is our philosophy. 25 Q. More of a buy and hold philosophy? A171 774 1 A. For the most part. I mean, we will--we will sell 2 if things appear to be overvalued, but generally we like to 3 buy and hold. 4 Q. And the SARM bond that you testified about, for 5 example, you bought at about a 20 percent discount? 6 A. Discount to par to its--that's correct. 7 Q. And Invesco, I think you described on your direct 8 examination, provides basically expertise in investment; is 9 that right? 10 A. We believe so, yes. 11 Q. And an investment strategy? 12 A. We believe so, yes. 13 Q. And determining the best things to buy? 14 A. Yes, we believe so. 15 Q. The right prices at which to buy them? 16 A. For the most part. You know, I can't say that we 17 always are able to do that. But we do--that is what we 18 strive to do, yes. 19 Q. Invesco had at this time--and maybe still today, 20 but I'm focusing on this time period 2008 to 2011, had 21 expertise in valuing residential mortgage-backed 22 securities? 23 A. We believe so, yes. 24 Q. And Invesco was a qualified institutional buyer? Do 25 you remember that? A172 775 1 A. Yes. 2 Q. That's a sophisticated investor, an institution? 3 A. Yeah, I don't know the exact definition, but 4 generally speaking you have to have a certain level of 5 investable assets and that sort of thing. 6 Q. Have you heard that called a QIB? 7 A. Yes. 8 Q. And QIBs can invest in things that regular people 9 can't? 10 A. That's correct. 11 Q. And Invesco manages money, I think you said for 12 clients? 13 A. Yes. 14 Q. And you described some of the clients. And you 15 said, I think, you have had now a lot of experience in 16 investments? 17 A. That I personally have a lot of experience in 18 investments? Yes, I have been with Invesco since 2001, so--19 Q. Did you say that you are a senior portfolio 20 manager? 21 A. That is my current title, yes. 22 Q. When did you get that title? 23 A. Within the last couple, maybe three years. 24 Q. And one of the things that Invesco did was submit an 25 application to participate in the PPIP program? A173 776 1 A. That is correct. 2 Q. You had some level of involvement in that process? 3 A. I don't recall necessarily having a significant 4 amount of--you know, that was generally handled by our 5 marketing and sales professionals and the more senior 6 investment people, but there's chance that, you know, they 7 asked me to look at something to make sure it sounded 8 reasonable, yes. 9 Q. Let me just show you, for identification purposes, 10 Your Honor, Defendant's Exhibit 2321. And if I may have a 11 hard copy to show the witness. 12 MR. BUTSWINKAS: Your Honor, may I approach? 13 THE COURT: You may. 14 BY MR. BUTSWINKAS: 15 Q. Mr. Norris, the first page of this document is on 16 your screen, but I am going to show you the whole document. 17 Handing the witness the hard copy of Defendant's Exhibit 18 2321. 19 Would you take a look at that document, the hard 20 copy, and as much or as little as you want to see if you can 21 identify what the document is? 22 A. Okay. It appears to be--I guess I don't know if 23 it is our official application. I guess it does say it on 24 the front page, application for the RFP from the Treasury to 25 participate in the PPIP program. A174 777 1 Q. Is this something that you would have reviewed? 2 A. I don't specifically recall reviewing it. It is 3 possible that I saw it, yes. 4 MR. BUTSWINKAS: Your Honor, I offer Exhibit 2321. 5 THE COURT: Any objection to 2321? 6 MS. CHERRY: Is it possible that we can get an 7 unredacted version of this document? 8 MR. BUTSWINKAS: Yes, of course. Let me lay a 9 foundation for that, Your Honor. He need a minute, Your 10 Honor, fairly--11 THE COURT: That's fine. 12 MS. CHERRY: It is a fairly long document with a 13 significant amount of redactions. We would like some time to 14 review it. 15 THE COURT: Can you move on to something else? 16 MR. BUTSWINKAS: Yes, Your Honor, I can certainly. 17 And just so the Court knows, this was redacted by the party 18 that produced it to us, Your Honor, not us. 19 THE COURT: Understood. 20 BY MR. BUTSWINKAS: 21 Q. Mr. Norris, the proprietary platform that you use at 22 Invesco, is it called Q-Tech? 23 A. At the time of these trades, that was--that was 24 our analytical system that we used, yes. 25 Q. That was proprietary to the company? A175 778 1 A. We did build that internally, yes. 2 Q. It was something that you maintained confidentiality 3 over? 4 A. Yes. 5 Q. And something that the company did not share with 6 the public? 7 A. Yeah, we shared its existence with the public. We 8 used it in marketing materials, that kind of thing, but we 9 did not allow the public to utilize it, no. 10 Q. When you say you shared it in marking materials and 11 such, that is to say to potential investors that we have an 12 edge because of our proprietary model? 13 A. Yes. 14 Q. That we can pick better investments than the next 15 company down the street? 16 A. We believe so, yes. 17 Q. And price investments better than the next company 18 down the street? 19 A. The Q-Tech wasn't really a pricing service. Well, 20 investment managers have to have a third-party pricing 21 service price their bonds. 22 Q. So did--Invesco had access to a third-party--23 what you call pricing service? 24 A. Yes. 25 Q. And which pricing service did you use, if you A176 779 1 recall, during this time period? 2 A. I believe it was IDC. I can't be certain on that, 3 but that's who we have used for a number of years now. 4 Q. Do you remember that Treasury required PPIP 5 participants to have a third-party pricing service to price 6 bonds? 7 A. I don't specifically recall that, but it certainly 8 makes sense that they would. 9 Q. Those pricing services are independent of the 10 investment management firm? 11 A. That's correct. 12 Q. So if it was IDC, for example, IDC is a separate 13 company from Invesco? 14 A. Yes. 15 Q. And it has expertise in pricing securities? 16 A. Yes, that's their job, yes. 17 Q. So they look at their own mountain of data to figure 18 out what the best pricing on securities is? 19 A. That's correct. 20 Q. One of the reasons that you turn to an independent 21 third party is to make sure that your portfolio is valued 22 properly for your investors? 23 A. Yeah. It creates some independence from a 24 regulatory standpoint. We're not supposed to be marketing 25 our own bonds or marketing our own positions because we A177 780 1 could, you know, theoretically inflate them or something like 2 that. So from a regulatory standpoint, they can require that 3 you hire an independent third party to price the bonds. 4 Q. So you can turn to these third-party pricing 5 services to get an accurate price at which a bond would trade 6 in the market? 7 A. I wouldn't necessarily say that. I mean, there are 8 times that they are fairly inaccurate. Particularly, in this 9 time frame that we're discussing right now. We are just 10 coming out of the crisis, financial crisis, and the pricing 11 services struggled to kind of keep up with the significant 12 movements and prices on the bonds. 13 Q. So would you generally defer to your internal 14 analytics? 15 A. Yes. 16 Q. In your internal analytics, do you analyze the 17 fundamentals of the bond? 18 A. Yes, we do. 19 Q. You do that to help determine the price that you 20 would be willing to pay? 21 A. That's correct. 22 Q. In fact, that's the purpose of the internal 23 analytics? 24 A. Right, right. 25 Q. You don't do all of that work by yourself, as I A178 781 1 think you pointed out earlier? 2 A. We have a credit research term that does the 3 fundamental analysis, yes. 4 Q. The credit research team that you talked about does 5 quantitative work the bonds? 6 A. Yes. 7 Q. And you largely rely on them to determine price with 8 their work? 9 A. What they do is they look at the fundamental 10 characteristics of the bonds. So these particular bonds are 11 made up of pools of residential mortgages. So, you know, 12 anybody's mortgage then gets pooled together and the payments 13--monthly payments on those mortgage pools feed up through a 14 bond and get paid out to investors, to people that own the 15 bond. 16 So what the credit research team does is try to 17 determine how those payments are going to look in the future. 18 Borrower characteristics of whether they are going to prepay 19 their mortgage or default on their mortgage or, you know, the 20 direction of interest rates. That's the kind of work that 21 they do. So what they try to do is determine the actual 22 value of a bond at any particular price. 23 Q. And then they look at an endless number of 24 characteristics of the underlying mortgages? 25 A. They do have a model that allows them to somewhat A179 782 1 quickly go through bonds, but, yes, it does have quite a bit 2 of data backing the model. 3 Q. In fact, when they produce their research, it can be 4 hundreds and hundreds of pages? 5 A. For a particular bond? 6 Q. Yes. 7 A. That, I don't know. That's not something that they 8 send to us that I recall. 9 Q. You have a pricing group at Invesco? 10 A. We do, yes. 11 Q. And they track pricing information about bonds, 12 among other things? 13 A. Yes. They are our liaison between the trading desk, 14 which would be my department, and the third-party pricing 15 service. 16 Q. And you had a structured securities team in 2009? 17 A. Yes, that's the group that I am in. 18 Q. In 2009, you were part of the structured securities 19 team? 20 A. That's correct. 21 Q. And the internal analytics that you talk about, 22 that's done with sophisticated computer models, isn't it? 23 A. The credit research team develops their models to--24 to analyze the bonds, yes. 25 Q. Let me show you--if you could put up on the screen A180 783 1 for identification purposes Defendant's Exhibit 2079. And I 2 would like to hand a hard copy to the witness, if I may, Your 3 Honor? 4 THE COURT: Yes. 5 MR. BUTSWINKAS: May I approach, Your Honor? 6 THE COURT: You may. 7 BY MR. BUTSWINKAS: 8 Q. I'm handing you Exhibit 2079, a hard copy of it. 9 A. Okay. 10 Q. It's all yours. 11 A. Thanks. 12 Q. And I would ask, if you would, Mr. Norris, to take a 13 look at that and identify the document. 14 A. Well, the first page is an e-mail between--well, 15 from a member of our credit research team to our entire 16 structured securities team. 17 Q. And that would include you? 18 A. Yes. 19 Q. And then what is the attachment? 20 A. The attachment is the profile, the credit research 21 profile page that we rely on, has the price and yield table. 22 And after that, I'm not sure what all of this is. 23 Q. Is that the data that is the product of the credit 24 research team's work? 25 A. It appears to be a lot of data, yes. A181 784 1 MR. BUTSWINKAS: Your Honor, I would offer 2 Defendant's Exhibit 2079. 3 THE COURT: Any objection to 2079? 4 MS. CHERRY: No objections, Your Honor. 5 THE COURT: 2079 is a full exhibit. 6 BY MR. BUTSWINKAS: 7 Q. They do a lot of work, sir, don't they? 8 A. Yeah. I mean, certainly all of this is automated, 9 but they do. When they are analyzing a bond, it could take 10--they can do it quickly, within 30 minutes, sometimes it 11 could take a little bit longer than that. 12 Q. And that's the product? 13 A. Well, generally, I only get sent this first page, 14 which is the--kind of what we call the profile page. I'm 15 not sure exactly what the rest of this is sent to me for. It 16 looks like a--well, I'm not sure what it is. 17 Q. What is your understanding of--is that information 18 the backup for the first page? 19 A. That's certainly possible, yes. 20 Q. This is an analysis of the SARM bond, isn't it? 21 A. Yes, it is. 22 Q. And I think you talked about different factors that 23 are looked at by the credit research team, including 24 characteristics of the individual mortgages, right? 25 A. There are additional factors, yes. A182 785 1 Q. Let's talk about the mortgages for a second. They 2 look at things like prepayment rates? 3 A. Yes. 4 Q. Default rates? 5 A. Yes. 6 Q. Loss severity? 7 A. Yes. 8 Q. LTV? 9 A. Loan-to-value, yes. 10 Q. And the number of performing loans, for example? 11 A. Yes. 12 Q. The ratings on the deal? 13 A. Yes. 14 Q. Because a lot of these deals had been Triple A rated 15 securities? 16 A. At issuance, a lot of them were rated Triple A, yes, 17 and have since been downgraded during the financial crisis. 18 Q. You took the question right out of my mouth. By the 19 time you were buying them, they had been downgraded? 20 A. For the most part, yes. 21 Q. They no longer retained their Triple A rating? 22 A. That's correct. 23 Q. That's one of the reasons why they were offered at 24 such discounts? 25 A. Right. A183 786 1 Q. Because the lower credit rating shows them as more 2 risky purchases? 3 A. That's correct. 4 Q. You look at the bond balance when you are studying 5 these potential investments? 6 A. Specify what you mean by "bond balance." 7 Q. The outstanding balance on the bond, what's left to 8 be paid off. 9 A. Right. That difference between the original and 10 current face is what's left. We're not always offered the 11 entire piece of the bond. 12 Q. You also look at the types of collateral, what kind 13 of loans there are? 14 A. Yes. 15 Q. For example, you look at a prime rate mortgage a 16 little bit differently than a subprime rate mortgage? 17 A. Yes. 18 Q. And an Alt A mortgage a little bit different than 19 those other two? 20 A. Yes. 21 Q. And a no-DOC loan a little different than those? 22 A. Yes, so we certainly take a look at all of that 23 information. 24 Q. So there's a lot of analysis done at the mortgage 25 level? A184 787 1 A. That's correct. 2 Q. You look at who the issuer is? 3 A. We--the issuer isn't necessarily a real strong 4 indicator of how the bond is going to perform. The servicer 5 can be a little bit better of an indicator. So that would be 6 more of a focus for us. 7 Q. You look at the servicer for the mortgage? 8 A. That's correct. 9 Q. You also look at the geography of the mortgages, 10 right? 11 A. That's correct. 12 Q. You are looking at what part of the country the 13 mortgage is because the economic conditions in that part of 14 the country could have a specific impact on those mortgages? 15 A. That's correct. 16 Q. And as we see, it is a lot of analysis? 17 A. There's a lot of data points, yes. 18 Q. And if you had bought the SARM bond at 80, that 19 would have meant good profit potential? 20 A. If we bought the bond at 80, our base case 21 expectation would be a yield over almost 7 and a quarter 22 percent. 23 Q. So yes, it would have been good profit potential? 24 A. I guess it depends on your definition of "good 25 profit." A185 788 1 Q. You were looking for a 7 percent yield, weren't you? 2 A. At the time, it is certainly possible. So that 3 would have been higher than our minimum threshold, yes. 4 Q. And you determined the price that you're willing to 5 pay based on your own analysis of the bond? 6 A. We determine--we determine the price that we want 7 to bid based on our own analysis, yes. 8 Q. If you could boil it down to the most important 9 variable, it would be potential yield? 10 A. Yes. 11 Q. That's what all of the information that's in Exhibit 12 2079 is about? 13 A. All of this information, yes, it feeds into what our 14 expectations of the yield of the bond are at specific price 15 points. 16 Q. And the total price that you paid Jefferies for the 17 SARM bond was consistent with what your internal analytics 18 were telling you was a good price? 19 A. It was consistent with getting us a yield over our 20 minimum threshold. 21 Q. It was consistent with what your independent 22 judgment was telling you was a good price? 23 A. What you do mean by "independent judgment"? My 24 personal? 25 Q. Yes, sir. A186 789 1 A. I'm sorry. Say the question again. 2 Q. Yes. The price that you paid Jefferies for the SARM 3 bond was consistent with what your personal judgment was 4 telling was a good price for that bond? 5 A. On that day, yes. 6 Q. On that day. Thank you for that clarification. It 7 was inconsistent with what your modeling was telling was a 8 good price for that bond on that day? 9 A. Again, good profit and good price, it is all--for 10 an investor, it is all relative. I mean, we certainly always 11 want to buy things as cheaply as we can. We would have 12 loved to have bought this bond at 70 if we could and gotten a 13 10 and a half percent yield. It is hard for me to say yes or 14 no to good price or good profit. 15 Q. You can't remember whether you reached out to other 16 broker-dealers to see if you can get a better price on this 17 bond? 18 A. Bid lists are generally sent to a number of 19 dealers because as a seller you want as many potential buyers 20 to see it as possible to ensure that you are trying to get 21 the best price. So it is possible that I saw this list from 22 other broker-dealers as well. But like I said, generally 23 it's the case that you don't want to send your bid to 24 multiple broker-dealers because then you could be serving to 25 bid against yourself. And so you pick one and go with it. A187 790 1 Q. What was the pricing color on the SARM bond at the 2 time that you bought it from Jefferies? 3 A. I don't recall. 4 Q. Is that something that you would have researched 5 for? 6 A. Before--yes, on a bid list we'll generally--7 before we send in a bid, we'll look to see if any 8 broker-dealers are providing what they call price talk, which 9 is their expectations of where the bond will trade. 10 Q. You don't remember whether there was or wasn't 11 any? 12 A. I don't recall, no. 13 Q. Is that something that you would have tracked 14 electronically? 15 A. Tracked electronically? Price talk? 16 Q. Yes. 17 A. Sometimes we do, sometimes--it depends on how busy 18 the day is. Sometimes, you know, if we're bidding on a lot 19 of different bonds at a lot of different times. I recall 20 building spreadsheets before to help me track that. But 21 other days where there isn't as much to do, it's a little bit 22 easier just to kind of maybe write it down or just remember 23 it. 24 Q. Generally, it is written down someplace, I take it? 25 A. Generally, it's--well, it is either recalled or A188 791 1 tracked some way, yes. 2 Q. And you talked about broker-dealers that you have 3 worked with. You worked with upwards of 20 broker-dealers; 4 is that right? 5 A. Probably even more than that, yes. 6 Q. Maybe as many as 30? 7 A. In a given year, I think, yes. 8 Q. And Jefferies wasn't one of the top firms you worked 9 with? 10 A. They were--you know, say if there's 30, they were 11 in the middle third. 12 Q. You didn't know Jesse well? 13 A. No. 14 Q. You never socialized with him? 15 A. No, I don't believe so. 16 Q. You never had dinner together? 17 A. I don't think so. A lot of times salespeople will 18 come down for dinners and that kind of thing, but I don't 19 recall ever meeting Jesse in that scenario. 20 Q. You never had visited with him at an industry 21 conference? 22 A. I don't believe so. 23 Q. Never been on a panel with him? 24 A. No. 25 Q. I take it you never had a lengthy discussion with A189 792 1 him? 2 A. I guess, you know, we certainly corresponded with 3 each other via Bloomberg chat or Bloomberg messages, and 4 maybe even on the phone. So, yeah, I guess it depends on 5 your definition of "lengthy." 6 Q. Do you remember any phone calls that you ever had 7 with him? 8 A. I don't recall any off the top of my head, no. 9 Q. What's the longest conversation you ever remember 10 having with Jesse? 11 A. I don't--I don't recall. 12 Q. More than five minutes? 13 A. Again, I don't recall if we every spoke on the 14 phone. Is that what you are focusing on, like a phone 15 conversation? 16 Q. Start with that, sure. 17 A. I don't recall ever talking on the phone with him. 18 It is certainly possible that we did. 19 Q. Have you ever been to his office? 20 A. I don't believe so. 21 Q. Has he ever been to your office? 22 A. I don't believe so. 23 Q. Have you ever negotiated a bond purchase from 24 Jefferies with Mr. Litvak where you were in person with him? 25 A. I don't believe so. A190 793 1 Q. Now, would you agree with me that in this RMBS you 2 have to be wary of what you would call volunteered 3 information? 4 A. Yes. 5 Q. Volunteered information has to be taken with a grain 6 of salt? 7 A. Yes. 8 Q. And you want to make sure that you don't give 9 volunteered information undue weight in your decision-making? 10 A. That's correct. 11 Q. And that's how you operate now and operated then? 12 A. That's correct. 13 Q. And that's one of the reasons why you do so much 14 internal work? 15 A. Yes. We don't want to rely on other's thoughts on a 16 particular bond. We want to do our own analysis. 17 Q. You certainly don't want extensive analysis like you 18 presented to us to be substantially altered by volunteer 19 information? 20 A. What do you mean "altered"? 21 Q. Let me rephrase the question. Let's take 22 broker-dealer projections. They are not really important to 23 you, are they? 24 A. What do you mean, projections like price talk or--25 Q. Cash flow projections. A191 794 1 A. Oh, cash flow projections. Yeah, I mean, they--2 they will sometimes send that to us what they think the value 3 of a bond is, and we'll look at it. You know, we like to 4 gather as much information as we can on a bond, but we don't 5 use that as our analysis, no. We do our own. 6 Q. One reason why is because back in that time period, 7 some six years ago, sometimes people intentionally put out 8 misleading information in the market? 9 A. I believe so, yes. 10 Q. You were aware of that? 11 A. Yes. 12 Q. That's one of the reasons for your skepticism about 13 volunteered information? 14 A. That's correct. 15 Q. In fact, you experienced situations where sellers in 16 the RMBS have put out pricing information that's 17 intentionally inaccurate? 18 A. I have experienced where sellers send to me? 19 Q. Yes. 20 A. Well, I don't necessarily know when it--or it is 21 or isn't inaccurate. But again, we take it with a grain of 22 salt because we know the potential is there that it is 23 inaccurate. 24 Q. For example, sellers sometimes lie about what a 25 second bid was after they have sold a bond? A192 795 1 A. Yes. 2 Q. These called false cover? 3 A. It is a false cover, yes. I wouldn't say it 4 necessarily has a specific term. 5 Q. You are aware that that was a practice in this 6 market during that time period? 7 A. Yes, I was aware that it does occur. 8 Q. And that's another reason why you are especially 9 skeptical about volunteered information? 10 A. Yes. 11 Q. And sellers put out false cover to try to protect a 12 buyer, for example? 13 A. That's one of the reasons, yes. 14 Q. And so you might have a situation where someone buys 15 a bond at 70 and the real second bid was 65, right? 16 A. That's possible, yes. 17 Q. In that situation, there's a great disparity between 18 the winning bid and the second bid, right? 19 A. Correct. 20 Q. And that might be one of the situation where 21 somebody intentionally puts out false cover, namely a false 22 higher bid? 23 A. That could be a situation, yes. 24 Q. You are aware that that has happened in the market? 25 A. Yes. A193 796 1 Q. And that's the type of volunteered information--2 that's the type of false pricing volunteered information that 3 you need to take with a grain of salt? 4 A. That's correct. 5 Q. The point of putting out the false cover, the false 6 second price into the market is to assure the market that 7 that winning price was a good price? 8 A. There's a number of different reasons why someone 9 could send out false cover. I don't think your--I don't 10 think the person sending it out is trying to assure the 11 market necessarily of anything. 12 Q. What are the different reasons why people put out 13 false cover? 14 A. It's generally a relationship thing with--between 15 the two counter-parties. When you send out false covers, 16 sometimes it is done to protect the buyer so that, you know, 17 the market doesn't expect or doesn't think that--let's see 18 here. The point of covers is to tell the market the context 19 of where the bond traded. And so the buyer, if they paid 20 significantly more than what everybody else was willing to 21 pay for it, sending out a false cover kind of protects that 22 buyer a little bit on their position. 23 Q. You started to say so the market doesn't expect or 24 think that the price for the bond was really lower than what 25 it was bought for, right? A194 797 1 A. So that the market--yeah. If you send out the 2 accurate cover of 65, then the market, you know, might think 3 that the bond traded closer to 65 than 70. 4 Q. That could hurt the purchaser? 5 A. It could. 6 Q. That's why purchasers might ask that the seller put 7 out false cover? 8 A. That's correct. 9 Q. You have experienced that? 10 A. Yes. 11 Q. And you talked about BWIC auctions. That has its 12 own language, right? 13 A. What do you mean by that? 14 Q. There's a lot of phrases that are characterizing 15 people's bids that are used in the BWIC auction context? 16 A. You have to be specific. 17 Q. You heard the phrase "you are the color" (sic)? 18 A. "You are the color"? 19 Q. The color (sic). The cover. I'm sorry. 20 A. Okay. I have heard the phrase "you are the cover," 21 yes. 22 Q. And that's mean the second-best bid? 23 A. That's correct. 24 Q. You have heard the phrase "you are in the hunt"? 25 A. That's correct. A195 798 1 Q. That means your bid is competitive? 2 A. That's correct. 3 Q. You have heard the expression "jump ball"? 4 A. Yes. 5 Q. That means essentially tied with another bidder? 6 A. Essentially everybody's bid is very close. "Jump 7 ball" means give me your best shot. 8 Q. You've heard the expression "you have to improve"? 9 A. Yes. 10 Q. That means you are not competitive yet? 11 A. That means that you are not the best bid. If you 12 want to buy the bond, you have to send in a higher price. 13 Q. And the problem--strike that. 14 One of the things that you have experienced in this 15 market is that sometimes the sellers are not always truthful 16 when they are using these terms? 17 A. That, I don't know. 18 Q. That's the type of volunteered information that you 19 would take with a grain of salt, I take it? 20 A. No. Generally, when you are dealing with a 21 transaction in realtime, you expect that you are being dealt 22 with fairly and accurately. The volunteered information that 23 I was discussing--false cover, they occur after 24 transactions occur. So kind of later, after, you know, the 25 deals are--or the transactions have already been finalized. A196 799 1 Q. Have you ever had electronic exchanges with any of 2 your colleagues in the market where you have expressed your 3 skepticism about information in the market? 4 A. I don't specifically recall doing that, but it is 5 certainly possible. 6 Q. It wouldn't surprise you if you had done that, 7 right? 8 A. Correct. 9 Q. So you wouldn't be surprised if you see electronic 10 chats that you have sent where you say "this supposedly 11 traded at a certain amount," because you are skeptical? 12 A. That's correct, I would not be surprised, yes. 13 Q. You have done that from time to time? 14 A. Again, I don't specifically recall an instance, but 15 it wouldn't surprise me. 16 Q. Now, Invesco buys a lot of bonds? 17 A. Yes. 18 Q. You can say depends on what you mean by a "lot." 19 But whatever we mean by a "lot," it buys a lot? 20 A. Sure. 21 Q. It sells a lot? 22 A. Yes. 23 Q. And you have been a buyer and a seller? 24 A. That's correct. 25 Q. And buyers have asked you to put out false cover A197 800 1 information? 2 A. That's correct. 3 Q. You have done that? 4 A. Yes. 5 Q. So there have been situations where you have gone 6 out to the market and done what you have just described as 7 putting out false cover? 8 A. Right, which is, you know, information after the 9 transactions have occurred. 10 Q. I take it that you expect that type of information 11 to be taken with a grain of salt? 12 A. I do. 13 Q. Whether you say it or whether someone else says it? 14 A. That's correct. 15 Q. When you complete a purchase, you receive a broker 16 notification report? 17 A. You will have to--18 Q. Let me show you the document. Defendant's Exhibit 19 621, please, just for identification. Do you have 20 Exhibit 621 in front of you? 21 A. I do, yes. 22 Q. Is it large enough for you to be able to read it? 23 A. Yes. 24 Q. Can you identify what that is? 25 A. It is a broker notification report. It is--A198 801 1 generally, that's a report that our operations department 2 handles, so it is what we consider our back office. They, 3 you know, verify all the details of the trade basically. 4 Q. So the broker notification report is a document 5 that's generated to capture the essential terms of the trade 6 and go to the back office? 7 A. That's correct. 8 MR. BUTSWINKAS: Your Honor, I would ask to admit 9 Defendant's Exhibit 621. 10 THE COURT: Any objection to 621? 11 MS. CHERRY: No objection. 12 THE COURT: It may be published. It is a full 13 exhibit. 14 MR. BUTSWINKAS: Thank you, Your Honor. 15 BY MR. BUTSWINKAS: 16 Q. Mr. Norris, do you see these from time to time? 17 A. Back in 2010, yes. Nowadays, everything is a little 18 more automated, but yes. 19 Q. Let me see what information you are familiar with on 20 this. At the top left, it says "CUSIP"? Do you see that? 21 A. Yes. 22 Q. That's just the Uniform Securities identification 23 number? 24 A. That's correct. 25 Q. And then it says, securities description, and that's A199 802 1 the SARM bond? 2 A. Yes. 3 Q. The one that you talked about today? 4 A. Yes. 5 Q. And then it says coupon, 5.959. What is that? 6 A. That's the interest rate on the bond. 7 Q. And then maturity, 11-25-35. What is that? 8 A. That's the final payment date of this particular 9 bond. 10 Q. Then it says to the right of that, tran type. I'm 11 assuming that means transaction type. 12 A. I believe that's the case, yes. 13 Q. It says buy, because you are buying that bond from 14 Jefferies? 15 A. That's correct. 16 Q. And then it shows the purchase price? 17 A. Yes. 18 Q. And that's--79.9375 is 79-30? 19 A. That's correct. 20 Q. Which was the total price for which you bought this 21 bond from Jefferies for? 22 A. Yes. 23 Q. And then it has the trade date, which is 7-1-10. 24 That's when you agreed to the price with Jefferies? 25 A. That's the day we greed to the details, yes. A200 803 1 Q. The settlement date, about six days later? 2 A. That's correct. 3 Q. Then below that, there's some smaller data. Can 4 you, Andrew, maybe make that larger? 5 So it has port symbol. Do you know what that is? 6 A. The account code. The portfolio code that we use in 7 our system. 8 Q. Then I jumped to par. That's what--the original 9 face value of the bond? 10 A. Yes. 11 Q. Of 59 million? 12 A. Yes. 13 Q. And then it has a current face of 29 million and 14 change? 15 A. That's correct. 16 Q. And of which is about 23 million in principal? 17 A. Yes. The principal amount is the current face 18 amount times the price paid for the bond. 19 Q. And then there is other information about this bond 20 across the page? 21 A. That's correct. 22 Q. As you said, this is a document that goes from 23 Jefferies principally to your back office? 24 A. Well, it might be a document that's produced by our 25 back office and sent to Jefferies. I'm not exactly sure on A201 804 1 the details there. 2 Q. And every time Invesco completes a purchase, an 3 internal trade ticket is generated; is that right? 4 A. I believe so, yes. 5 Q. It contains the essential terms of the trade? 6 A. Yes. 7 Q. The price and any associated costs with the 8 transaction? 9 A. It should, yes. 10 Q. It shows the total price? 11 A. Right. 12 Q. It doesn't reflect any markup, for example? 13 A. I don't believe so. 14 Q. Or any payment for services to a broker-dealer? 15 A. I don't believe so. 16 Q. It just reflects total price? 17 A. I believe that's the case, yes. 18 MR. BUTSWINKAS: Your Honor, I have no further 19 questions. Thank you. 20 THE COURT: Can the issue of the outstanding 21 document for identification wait for lunch? 22 MR. BUTSWINKAS: It is only a question about 23 admissibility. I don't need to ask questions of the witness 24 about it. 25 THE COURT: That's fine. A202 805 1 Redirect, briefly? 2 MS. CHERRY: If I can have a moment to set up. 3 REDIRECT EXAMINATION 4 BY MS. CHERRY: 5 Q. Mr. Norris, you were shown a document that was 6 created by Legal and Compliance that talked about PPIPs and 7 broker-dealers. Having seen that document, does that change 8 your understanding of--your understanding that Mr. Litvak 9 was acting as an agent? 10 A. No, it does not. 11 Q. And whether Litvak was an agent or principal, did 12 that make a difference to you as to whether you thought 13 Litvak was telling the truth when he said he was using your 14 bid? 15 A. No, it does not. 16 Q. And whether Litvak or--Mr. Litvak, excuse me, was 17 an agent or a principal, did that make a difference to you as 18 to whether you thought you were negotiating to pay Mr. Litvak 19 on top of the price that he told you he bought the bond for? 20 A. No, that doesn't change. 21 Q. Mr. Butswinkas showed you a document, Defendant's 22 Exhibit 621. And on top, it had a price 79 spot 9375. Is 23 that the same as 79-30? 24 A. Yes. 25 Q. And that was a total price that Invesco paid for A203 806 1 that bond? 2 A. That's correct. 3 Q. What makes up--what were the components of that 4 total price? 5 A. It combines the price that the bond was purchased 6 from the seller with the commission that was paid for that 7 bond--for that transaction. Sorry. 8 Q. I think you said that the most important or one of 9 the most important variables leading to the bid is the 10 potential yield. What's the relationship between price and 11 yield? 12 A. So a higher price means a lower yield and a lower 13 price means a higher yield. And yield is the return that we 14 would expect to get on a particular investment. 15 Q. What's your goal as to price? 16 A. You want to buy any security at the lowest possible 17 price you can. 18 Q. You were asked about not relying on volunteered 19 information. Was Mr. Litvak's statement to you that he was 20 using your bid info that you relied on? 21 A. Yes. 22 Q. Why? 23 A. That's because we were in the middle of a 24 negotiation on a transaction. That's not--that's not 25 information that you take with a grain of salt. You're A204 807 1 supposed to be acting--he's supposed to be acting in my 2 best interest and, you know, I accept what he tells me in 3 that instance as the truth. 4 Q. What about when he said he bid your level, is that 5 information you relied on? 6 A. Yes. 7 Q. Why is that? 8 A. Because that tells me that he--again, that he bid 9 on the bond at the price that I specified. 10 Q. Mr. Butswinkas asked you some questions about cover 11 and false cover. Is cover given before or after a 12 transaction is finalized? 13 A. It's given after. 14 Q. And when Mr. Litvak told you that he bid your level, 15 was that before or after the transaction was finalized? 16 A. That was before. 17 Q. And when Mr. Litvak said that he bid 79-24 (sic) on 18 the FHASI bond, was that before or after you had finished the 19 negotiations? 20 A. He told me he bid 79-26 on the FHASI bond. 21 Q. Thank you. 22 A. And that was--that was in the middle of our--or 23 during our transaction, yes, so I guess before the 24 finalization of the trade, yes. 25 Q. When he told you that, the transaction had not been A205 808 1 completed yet? 2 A. That's correct. 3 Q. There was a question Mr. Butswinkas asked--asked 4 you if you went to a different broker-dealer to put in a bid 5 or to get more information. If you had known that Mr. Litvak 6 wasn't bidding your level, your bid, on the SARM bond, would 7 you have gone to a different broker-dealer? 8 A. If I had known that he wasn't using--if he was 9 being dishonest with me, yes, I would certainly choose to go 10 to a different broker-dealer that would deal with me in a 11 fair manner, yes. 12 Q. And you were asked--Mr. Butswinkas asked you what 13 was your maximum price that you were looking to pay on the 14 SARM bond, and you said you didn't recall. Were you looking 15 to pay the maximum price for the SARM bond? 16 A. No. We strive to pay the minimum price that we 17 can. 18 Q. And finally, you were asked about altered 19 information. Who sent you an altered document? 20 A. Jesse Litvak sent me an altered document. 21 MS. CHERRY: May I have a moment, Your Honor? 22 THE COURT: You may. 23 MS. CHERRY: No further questions, Your Honor. 24 THE COURT: You may step down, Mr. Norris. Thank 25 you very much, and you are excused, sir. Your next witness. A206 697 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 10, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY FOUR OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 A207 859 1 A. The seller. 2 Q. Why do you think that Mr. Litvak is paying 57 and a 3 half to the seller? 4 A. Because he says that he was firm at 57-16, that 5 that's the lowest he's willing to go. 6 Q. So would it have mattered to you at the time if you 7 had known that Mr. Litvak actually bought the bond at 56 and 8 a half instead of 57 and a half? 9 A. Yes. 10 Q. Please explain why. 11 A. Why is because my 2-tick commission just became 34 12 ticks. 13 Q. What's wrong with paying 34 ticks? 14 A. That's a lot more than 2 ticks. 15 Q. What was your understanding of Mr. Litvak's 16 relationship to you in this trade? 17 A. He relationship to me, he was my broker in the 18 trade. 19 Q. Just like the last one we saw? 20 A. He was acting as my agent. 21 Q. He's--intermediary was another word you used? 22 A. Facilitating the trade, yes. 23 Q. How did you come to have that understanding? 24 A. He said that he had a seller that he was--that he 25 had already traded some of these bonds for the seller, that A208 860 1 we were negotiating about commission. It had all the 2 characteristics of that type of trade. 3 Q. If you had known--before you said 34 was more than 4--34 ticks was more than 2. If you had known he was making 5 34 ticks, would that have been something that you wanted to 6 know? 7 A. Certainly. 8 Q. Why? What would you have done with that 9 information? 10 A. I would have used it to get the commission back to 2 11 ticks. 12 Q. So if I tell you that the difference between 34 13 ticks and 2 ticks is more than $179,000, does that change 14 your answer? 15 A. Does it change my answer? 16 Q. Yes. Does it change your answer? 17 A. I think it is consistent with my answer. 18 Q. Why doesn't that change your answer? It's $179,000. 19 A. Right, that I just overpaid, you're saying. 20 Q. I don't want to--21 A. I want to make sure I'm not misunderstanding your 22 question. 23 Q. Sure. So if the difference 34 ticks on one hand and 24 2 ticks on the other is $179,000, it is $179,500 25 approximately, does that still matter to you? A209 925 1 A. Yes. 2 Q. And that's a multi-strategy hedge fund? 3 A. Yes. 4 Q. It invests in securities across the board? 5 A. Yes. 6 Q. Including securitized products? 7 A. Yes. 8 Q. And other equities? 9 A. Yes. 10 Q. Including distressed debt? 11 A. Yes. 12 Q. Including what the jury has heard as RMBS? 13 A. Yes. 14 Q. Residential mortgage-backed securities? 15 A. Yes. 16 Q. And QVT does a lot of analysis on bonds before it 17 purchases them? 18 A. I would say that's accurate. 19 Q. And QVT did analysis on the bonds that you testified 20 about when the Government questioned you? 21 A. Yes. 22 Q. And it is typical a QVT investment begins with a 23 fundamental analysis of the bonds? 24 A. Yeah, I would say that's accurate. 25 Q. What is a fundamental analysis? A210 926 1 A. So it can vary, but I think in the context of--are 2 we talking about RMBS bonds here? 3 Q. That's all we're talking about. 4 A. Okay. So in the context of RMBS bonds, I would 5 interpret fundamental analysis to relate to the behavior of 6 the underlying collateral and the assumptions that go into 7 that that ultimately allow us to determine what kind of yield 8 we would receive on it. 9 Q. The financial characteristics of the underlying 10 mortgages? 11 A. Yes, I think these a fair reflection. 12 Q. That's what you mean by collateral? 13 A. Yes. 14 Q. The collateral for an RMBS bond is a bundle of 15 mortgages? 16 A. Correct. 17 Q. Can be into the thousands of mortgages? 18 A. Yes. 19 Q. And in the bonds that you talked about in the 20 Government's examination, those were large bundles of 21 mortgages that were the collateral for those bonds? 22 A. Yes, I would say large. 23 Q. Okay. And you are not claiming that Mr. Litvak 24 misrepresented any of the fundamentals of those mortgages 25 that were the collateral for those bonds, are you? A211 927 1 A. No. 2 Q. And, in fact, you had all of that information 3 accurately to analyze? 4 A. I missed you at my--you say--can you just repeat 5 the question? 6 Q. Yes, sir. QVT had all of the fundamental financial 7 characteristics of the underlying mortgages to those bonds to 8 analyze? 9 A. Yes. 10 Q. Mr. Litvak didn't misrepresent anything about the 11 product, the fundamentals of the product? 12 A. No. 13 Q. You got exactly the bond you thought you were 14 buying? 15 A. As far as I'm aware, yes. 16 Q. And QVT has used proprietary software in its 17 analysis? 18 A. Yes. 19 Q. And is that proprietary software that is internally 20 developed? 21 A. Yes. 22 Q. Did you have a role in the internal development of 23 that software? 24 A. Yes. 25 Q. And that's the use of computer modeling? A212 948 1 A. Before I completed the trade, you are saying? 2 Q. Yes, sir. 3 A. Yes. 4 Q. And the analytics? 5 A. Yes. 6 Q. You bought it for 51.75; is that correct? 7 A. That seems to be the case, yes. 8 Q. March 29, 2010, you bought it for cheaper than this? 9 A. I'm sorry. I don't recall what the--do you have 10 the trade ticket from the March 29? 11 Q. Do you remember being asked about it yesterday? 12 A. I remember being asked about it, yes. 13 Q. You don't remember the price? 14 A. That would be helpful. The price would be. I can 15 give you a definitive answer. 16 Q. With the difficulty remembering the price just from 17 yesterday, I can't even imagine how difficult it would be to 18 remember six years ago, right, sir? 19 A. Or even three years ago, that's correct. 20 Q. Let me show you Government's Exhibit 92. This, I 21 believe, is in evidence, so you can publish it with the jury. 22 And if you can go down to line 19:22:29 through 19:23:19. 23 So let me ask the question, sir. On March 29, 2010, 24 you bought the same bond that you bought on the 26th for 25 51-06; is that right? A213 949 1 A. Correct. 2 Q. 18 ticks cheaper than you had bought it three days 3 earlier? 4 A. Yes. 5 Q. And I take it that you would not have bought this 6 bond on the 29th if your analysis did not show attractive 7 profit potential? 8 A. Yes. 9 Q. And you would not have bought this bond if your 10 analysis didn't show that the total price would meet your 11 target yield? 12 A. Yes. 13 Q. And that's true of the LXS bond, as well, isn't it? 14 That is to say you would not have bought that bond if your 15 analysis did not show it to have an attractive profit 16 potential? 17 A. Yes. 18 Q. And you would not have bought the LXS bond if the 19 total price that you paid for it would not meet your target 20 yield? 21 A. Yes. 22 Q. Would it be fair to say that you are inherently 23 skeptical when you approach negotiations in this industry? 24 A. Yes. 25 Q. And you know, for example, that counterparties in A214 950 1 the RMBS market are sometimes not being completely truthful? 2 A. In certain regards, yes. 3 Q. And counterparties sitting across--you don't like 4 that expression. Counterparties against whom you are 5 negotiating spin information? 6 A. Yes. 7 Q. And they shade information in a way that might not 8 be entirely truthful; you experienced that? 9 A. I have certainly experienced that, yes. 10 Q. Counterparty have been known to provide false 11 pricing information, false color? 12 A. I don't--I guess except for what we're talking 13 about now, I don't know that I have proof of that in 14 instances--in other instances, so that I don't know that I 15 can--16 Q. But you keep your antennas up for that, don't you? 17 A. I do. 18 Q. Because you have to be wary of volunteered 19 information? 20 A. Well, it depends on the situation. 21 Q. You are aware when you are negotiating against a 22 counterparty that volunteered information may not be 23 100 percent truthful? 24 A. Again, it depends on the situation. 25 Q. You're on guard when you hear volunteered A215 951 1 information from a counterparty negotiating against you? 2 A. Negotiating against me, yes. 3 Q. And when you spoke with the Government about this, 4 one of the things that you surmised was that Jesse was 5 pretending to pin his bottom line on the seller to him so 6 that he could not have to take blame for his bottom line? Do 7 you remember telling the Government that? 8 A. I don't recall that. 9 Q. Let me put up for the witness--and, Your Honor, 10 for identification purposes, Defendant's Exhibit 1418, page 11 4, please. Bottom paragraph. The sentence--12 MR. BUTSWINKAS: Your Honor, can I point out the 13 place to the tech person? 14 THE COURT: That's fine. 15 BY MR. BUTSWINKAS: 16 Q. Mr. Wollman, could you read those two sentences to 17 yourself and tell the jury whether that refreshes your 18 recollection that when you met with the Government you 19 thought that Jesse was blaming a seller for his bottom line 20 so that he didn't have to take the blame for his bottom line? 21 A. No, this does not refresh my recollection. 22 Q. Now, have you ever invented a fictitious seller to 23 use leverage in a negotiation? 24 A. Certainly not that I can recall. 25 Q. So you may have, you don't remember? A216 985 1 Will you both agree that when you are talking about "it," 2 we're talking about a document that's marked as Exhibit 2324? 3 MR. BUTSWINKAS: Yes, Your Honor. 4 THE WITNESS: Well, so this is--5 THE COURT: He's been questioning you about that? 6 THE WITNESS: Right. Right. So I was referring to 7 the spreadsheet that this represents. Obviously, this is a 8 printout of the spreadsheet. It is not actually the 9 spreadsheet itself, but to the extent that it represents the 10 same thing, yeah. 11 THE COURT: That's fine. Because right now nobody 12 has mentioned the number or the document description and I'm 13 afraid that it's not clear that it is 2324. So that's 14 fine. 15 BY MR. BUTSWINKAS: 16 Q. Just two more questions, sir. 17 The total price that you paid on the LXS bond was 18 consistent with your internal analytics about whether it was 19 good price? 20 A. Sorry. The LXS, we're talking about the LXS bond--21 which LXS bond? 22 Q. The one you testified that you bought from 23 Jefferies? 24 A. We're not talking about the BWIC anymore? 25 Q. No, we're moving on from that. A217 986 1 The question is, the LXS bond that you bought from 2 Jefferies, the total price that you paid was consistent with 3 what your internal analytics told you was a good price for 4 that bond? 5 A. Yes. 6 Q. And with respect to the CWALT bond, the March 30, 7 2010 transaction, the total price that you paid was a price 8 that your internal analytics told you was a good price for 9 the bond? Same question. 10 A. It is a price--it is a price that I was 11 comfortable buying the bond at. 12 MR. BUTSWINKAS: Nothing further at this time. 13 Thank you. 14 THE COURT: We broke from 20 of 11:00 to 10 of 15 11:00, right? So you have just come back. 16 How long do you think you will be on redirect, 17 Attorney Francis? 18 MR. FRANCIS: 10, 15 minutes, Your Honor. 19 THE COURT: Let's do that and then we'll take our 20 break unless anybody is really unhappy. If you could do 21 that, Attorney Francis, that would be very good. 22 MR. FRANCIS: Let me have one moment to get set up. 23 THE COURT: Absolutely. 24 REDIRECT EXAMINATION BY MR. FRANCIS: 25 Q. Good morning, Mr. Wollman. A218 1215 A219 3:13cr19 (JCH) 1215-1 A220 1215-2 A221 1215-3 A222 A223 A224 1345 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 13, 2017 4 Government)9:13 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY SEVEN OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND Jury OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 A225 1456 1 still owed, or as he put it, it was a around 15, he wasn't 2 sure. 3 Now, I want to contrast Mr. Burnaman, the expert 4 witness that the defense paid, with the five reasonable 5 investors who testified. I want to point out three 6 characteristics that really are important in assessing their 7 value in this case. Number one, they were active investors 8 in 2009, 2010 and 2011. They knew what was happening in the 9 market, how the market operated that day. They were involved 10 in these trades. Number two. They know the facts of this 11 case. They lived through the facts of this case. They stood 12 in the rain with Mr. Litvak in these chats in this case. 13 They can tell you how these mattered, not in the abstract but 14 specifically how that played out in this case. And I submit 15 to you that none of them exhibit any signs of bias one way or 16 the other. They had no axe to grind. There was no 17 indication that they had any stake in the outcome of this 18 case. 19 Now, I would like to address this issue of the 20 agent/principal question, and I would like to suggest it is a 21 red herring. There was a lot of time spent on that. And the 22 Government has never claimed and does not claim now, let me 23 make it clear, that anybody was--Mr. Litvak was ever acting 24 as an agent. What was important was the testimony you heard 25 from the victims that he created the perception. They A226 1457 1 thought he was acting as their agent. That's the critical 2 thing. 3 And you will see in the judge's instruction--the 4 judge is going to instruct you that in this kind of a 5 circumstance, in the RMBS market, the trader at the 6 broker-dealer is not acting as someone's agent. It is a 7 principal-to-principal trade and has no special duties. And 8 there was discussion about, well, if I'm a principal, I have 9 no duty of disclosure to you. I don't have to tell you the 10 price I bought at. I don't have to tell you the price I'm 11 selling at. Of course. Of course. 12 The question isn't did he have to, the question is 13 why did he choose to. Why did Mr. Litvak choose to establish 14 a relationship of trust to lead them all to think that he was 15 trustworthy? Why? 16 THE COURT: You have about five minutes. 17 MR. NARDINI: Thank you, Your Honor. 18 It was to establish a relationship of trust so that 19 he could make more money. 20 Now, there were a number of issues that the defense 21 raised. I think it was an eight-point checklist, and I would 22 suggest to you that that's like walking into the used car lot 23 where the guy comes in and says I'd like to see how the car 24 runs. And they say let me show you the AM stereo. This is 25 great. No, I want to know how the car runs. And they say, A227 Case 3:13-cr-00019-JCH Document 523 Filed 01/13/17 Page 1 of 59 UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT UNITED STATES OF AMERICA,:: CRIMINAL CASE NO. v.: 13-CR-19: JESSE C. LITVAK,: JANUARY 13, 2017 Defendant.: JURY CHARGE 1 A228 Case 3:13-cr-00019-JCH Document 523 Filed 01/13/17 Page 37 of 59 27. NO AGENCY In the law, a person is an agent if he is authorized to act on behalf of another, known as a principal. An agent owes certain duties to his principal. In the transactions at issue in this case, Mr. Litvak was not the agent of the buyers or sellers of the RMBS. In other words, when he bought an RMBS from another person, he was not an agent of that seller. Further, when he sold an RMBS to another person, he was not the agent of that buyer. 37 A229 Case 3:13-cr-00019-JCH Document 523 Filed 01/13/17 Page 47 of 59 35. COUNTS ONE THROUGH SIX AND EIGHT THROUGH ELEVEN: SECURITIES FRAUD—SECOND ELEMENT If you find that the government has proven beyond a reasonable doubt that a statement was false or omitted, you must next determine whether the fact misstated or omitted was material under the circumstances. In order for you to find that a misrepresentation or omission was material, the government must prove beyond a reasonable doubt that there was a substantial likelihood that the misstated or omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information available. To "significantly alter the total mix of information available" means to meaningfully affect a reasonable investor’s consideration about whether to buy or sell, and at what price. To be material, a misstated fact or omission need not determine any particular outcome. However, the government must prove beyond a reasonable doubt a substantial likelihood that the disclosure of the truth or the omitted fact would have assumed significance in the deliberations of the reasonable investor. In other words, in order to be material, the false statement or omitted fact must be of such importance that it could reasonably be expected to cause or induce a reasonable investor to act or not act with respect to the transaction at issue. Materiality, however, does not require proof of a substantial likelihood that disclosure of the truth or the omitted fact would have caused a reasonable investor to act differently. The securities fraud statute does not, however, prohibit misstatements or omissions that would be minor, trivial, or unimportant to a reasonable investor. The word "material" is used to distinguish the kinds of statements that would have been significant to a reasonable investor in making an investment decision, from those that 47 A230 Case 3:13-cr-00019-JCH Document 523 Filed 01/13/17 Page 48 of 59 would be of no real importance to that investor. In order to be material, there must be a substantial likelihood that a reasonable investor would find the misrepresentation important in making an investment decision. However, a false statement cannot be material if it constitutes mere puffing or sales talk that would not, in the view of the reasonable investor, significantly alter the total mix of information available in making an investment decision. For the purposes of this case, a "reasonable investor" is an investor in the RMBS market. In determining whether the stated or omitted fact is material, you must consider the sophistication of investors in that market and the sorts of information available to investors in that market. You should consider all the evidence about what such a reasonable investor would consider important when making an investment decision, and approach the question of materiality objectively. You must assess whether the false statement or omitted fact was material to a reasonable investor as of the time of the transaction, and not based upon a hindsight view. The determination of whether something was material requires a careful assessment of the inferences a reasonable investor would draw from the information provided, or not provided, to him, and the significance of those inferences to such an investor. It is a very fact-specific inquiry, which you must undertake. If you find that, as to a count of securities fraud, the government failed to prove beyond a reasonable doubt this second element, then your deliberation with respect to that count is finished, and you must return a verdict of not guilty as to that count. However, if you find that, as to a count, the government has proven beyond a 48 A231 Case 3:13-cr-00019-JCH Document 523 Filed 01/13/17 Page 49 of 59 reasonable doubt the second element, then you should proceed to consider the third element, intent, on which I will now charge you. 49 A232 1766 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 27, 2017 4 Government)9:30 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street New Haven, Connecticut 8 9 DAY FIFTEEN OF TRIAL. 10 (VERDICT) 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 13 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 25 A233 1769 1 THE CLERK: As to the charge in Count One of 2 Securities Fraud, we, the jury, unanimously find the 3 Defendant Jesse Litvak not guilty. 4 As to the charge in Count Two of Securities Fraud, 5 we, the jury, unanimously find the Defendant Jesse Litvak not 6 guilty. 7 As to the charge in Count Three of Securities Fraud, 8 we, the jury, unanimously find the Defendant Jesse Litvak not 9 guilty. 10 As to the charge in Count Four of Securities Fraud, 11 we, the jury, unanimously find the Defendant Jesse Litvak 12 guilty. 13 As to the charge in Count Five of Securities Fraud, 14 we, the jury, unanimously find the Defendant Jesse Litvak not 15 guilty. 16 As to the charge in Count Six of Securities Fraud, 17 we, the jury, unanimously find the Defendant Jesse Litvak not 18 guilty. 19 As to the charge in Count Eight of Securities Fraud, 20 we, the jury, unanimously find the Defendant Jesse Litvak not 21 guilty. 22 As to the charge in Count Nine of Securities Fraud, 23 we, the jury, unanimously find the defendant Jesse Litvak not 24 guilty. 25 As to the charge in Count Ten of Securities Fraud, A234 1770 1 we, the jury, unanimously find the Defendant Jesse Litvak not 2 guilty. 3 As to the charge in Count Eleven of Securities 4 Fraud, we, the jury, unanimously find the Defendant Jesse 5 Litvak not guilty. 6 Signed by the foreperson dated today. 7 THE COURT: Ladies and gentlemen of the jury, is 8 that your verdict so say you all. 9 THE JURY: Yes. 10 THE COURT: Is there any request for polling of the 11 jury at this time? 12 MR. FRANCIS: Not from the Government, Your Honor. 13 MR. BUTSWINKAS: Not from the defense, Your Honor. 14 THE COURT: All right then at this point, the Court 15 directs that the verdict be recorded and made a part of the 16 record of our court. 17 With that, having said those words, that means your 18 duty is done. You have completed your service as jurors. 19 You are free to go. 20 Before you leave, however, I want to express to you 21 the Court's genuine gratitude for your service, the case went 22 on for a while, you deliberated for quite a while. Your 23 service a greatly appreciated. As I said to you when you 24 were first called, this is one of the few things we can do as 25 citizens and you have done that. I thank you all very much. A235 1 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)April 26, 2017 4 Government)9:30 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street New Haven, Connecticut 8 9 SENTENCING HEARING. 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 25 A236 57 1 reason here to decline to consider acquitted conduct. 2 As the Circuit said in the Casey case, 796 F.3d, 3 176, 199, the Court being the Second Circuit Court, they made 4 clear that, quote, there is neither a logical inconsistency 5 between acquittal by a jury, i.e., a finding on the fact not 6 proven by a reasonable doubt, and the factual finding of 7 guilt by a sentencing court, meaning it is not really guilt, 8 but it is by a preponderance that the elements have been 9 proven based on the same evidence. And that's really exactly 10 what's occurred here. 11 I find by a preponderance of the evidence that 12 Mr. Litvak's actions with respect to each of the charged 13 trades and each of the uncharged conduct, both those 14 introduced at trial and those that are submitted by way of 15 exhibits to the sentencing memo of the Government, that those 16 all satisfy the elements of securities fraud, including 17 materiality by a preponderance of the evidence. I am of the 18 view that all of this conduct really was part of the same 19 scheme. It is all in the same nature. It's--you know, I 20 don't have everything in front of me, but I'm not sure I can 21 say I had everything in front of me with Mr. Norris. I mean, 22 there may have been things about his company, were they being 23 pressured to buy more this month, to not buy as much. 24 There's a whole lot of other facts that I don't know even 25 about the convicted conduct, but I think that the test is A237 58 1 whether--well, I guess I shouldn't--shouldn't--whether 2 the disclosure of the truth of the omitted fact would have 3 assumed significance in the deliberations of the reasonable 4 investor. And it doesn't require proof of a substantial 5 likelihood that disclosure of the truth of the admitted fact 6 would have caused the reasonable investor to act differently. 7 So it's my conclusion based on a preponderance of 8 the evidence that as to the 76 transactions before me, the 9 convicted count plus the 75, which represent nine acquitted 10 counts, 10 uncharged counts that were at issue in the second 11 trial and 56 other transactions that the misrepresentations 12 by Mr. Litvak about either his acquisition price, his--in 13 other words, what his firm paid or what he paid to buy the 14 bond or what he was going to sell the bond at or that it was 15 an inventory trade, or not saying it was an inventory trade. 16 In other words, the three ways which are set forth in great 17 detail in my post-trial ruling, the three different lies or 18 types of lies all were material to the victim and there was a 19 loss suffered by them measured the same way I described as to 20 Count Four. 21 And I should say that in reaching that decision 22 about the trades beyond Count Four, I'm not only using 23 testimony from the second trial, but I reminded myself of 24 Mr. Lemin's testimony at the first trial, 647, Line 8--I'm 25 sorry--trial transcript at 647, Line 8 to 647, Line 12. A238 166 1 appeal and, in this case, win on significant issues requiring 2 a retrial. 3 I agree completely--obviously, that's Alabama 4 versus United States, Wasman at Supreme Court, 104 Sup.Ct. 5 3217 in 1984. I agree completely with that principle, and I 6 hope when I finish and I impose the sentence, that the 7 proceeding that's now taken three or four hours so far will 8 reflect what is the truth, and that is that nothing I'm doing 9 here today to Mr. Litvak has been done because I'm angry he 10 took an appeal or angry I got reversed or I want to punish 11 him for doing any of those things. I certainly hope that 12 what I said and I how I have approached this reflects that. 13 But if it needs saying, I wanted to say that. 14 My obligation today is to decide a sentence today 15 based on the record before me today. That record is not the 16 same as 2014. And if the differences are significant as they 17 relate to sentencing factors, then the sentence does not have 18 to be the same. And I think that's true both as in a lower 19 sentence as well as in a higher sentence. Here, I think that 20 the differences--I understand, I think, the argument now 21 better than I did on briefs about the acquittal reflects the 22 seriousness factor, it diminishes the seriousness, or the 23 charging or lack of charging, the treatment of other people 24 reflects the seriousness, changes the seriousness. I guess I 25 will say I think that could be the case, but I can't say that A239 167 1 I find that to be the case here in this case. And maybe it 2 is because my view of the evidence is that Mr. Litvak 3 committed the nine crimes and that the other conduct that's 4 in front of me is also criminal. It was material. I know--5 or I assume respectfully disagrees with me. His lawyers 6 certainly respectfully disagree with me, but that's just my 7 view of the case. And so while the argument is a viable 8 argument, it doesn't hit me with weight, I guess. I don't 9 know how else to say it. I'm mindful of what you said, but I 10 don't find it weighty in this instance. 11 Also, I think--again I think there's disagreement 12 from the defense, but I think that his son's circumstances 13 are different. I'm not saying they are not significant and 14 there aren't still issues. I'm just saying they are not the 15 same. 16 I think the fact that he sued Mr. Canter is a 17 different fact in front me. I understand that the position 18 that judge--that's really bad lawyering, you know. 19 Aggressive lawyering by this employment lawyer and bad 20 lawyering by his first criminal lawyer and not saying, wait a 21 minute, we can't do that without going to the judge. But the 22 fact of the matter is, at some point he sat with his lawyer, 23 his employment lawyer and said sue Mr. Canter. Now, my view 24 might be, if it were me, I would say, well, the case is over, 25 right, but his view wasn't that it was over. His view was he A240 Case 3:13-cr-00019-JCH Document 542 Filed 05/02/17 Page 1 of 4 A0245b (USDC-CT Rev. 9/07) UNITED STATES DISTRICT COURT Page I District of Connecticut UNITED STATES OF AMERICA JUDGMENT IN A CRIMINAL CASE V. CASE NO. 3:13CR19 (JCH) USM NO: 21467-014 Jesse Litvak Jonathan Francis/Heather Cheny Assistant United States Attorney Dane Bulswinkas!C.J. Mahoney Defendant's Attorney TH E DEFENDANT: found guilty on Count 4 after jury trial. Accordingly the defendant is adjudicated gu ilty of the following offense: Title & Section Nature of Offense Offense Con cluded Title 15, United States Code, Securities Fraud December 20 II 4 Sections 78(b) and 78ff The following sentence is imposed pursuant to the Sentencing Reform Act of 1984. The sentence imposed is a variance sentence which reflects the nature and circumstances of the offense and the history and characteristics of the defendant, including his lack of any prior criminal history. The sentence is sufficient, but not greater than necessary to effectuate the purposes of sentencing. IMPRISONMENT The defendant is hereby committed to the custody of the Federal Bureau of Prisons to be imprisoned for a total of24 months. SU PERVISED RELEASE Upon release from imprisonment, the defendant shall be on supervised release for a total term of3 years. Supervision shall be transferred to the Southern District of Florida. The Mandatory and Standard Conditions of Supervised Release as attached, are imposed. In addition, the following Specia l Conditions are imposed: I. The defendant sha ll participate in a program recommended by the Probation Office and approved by the court for inpatient or outpatient substance abuse treatment and testing. The defendant shall pay all or a portion of the costs associated with treatment based on his ability to pay as determined by the Probation Office and approved by the court. 2. The defendant shalt pay a fine in the amount of $2,000,000, payable in a lump sum immediately. If the fine is not paid in full within 30 days, interest shall accrue at the legal T-Bill rate. Any amount that remains unpaid at the commencement of supervised release shall be paid at a rate of no less than I 0% of the defendant's net income per month. The monthly payment schedule may be adjusted based on the defendant's ability to pay as determined by the Probation Office and approved by the court. 3. The defendant shall not incur new credit card charges above $500 or open additional lines of credit without the prior permission of the Probation Office until the defendant's criminal debt obligation is paid. The defendant shall not add any new names to any lines of credit, shall not be added as a secondary card holder on another's line of credit, and shall provide the Probation Office with electronic, read-only access to any online management of any lines of credit, including lines of credit for businesses/LLC's that are owned, operated or otherwise associated with the defendant. 4. The defendant sha ll not possess ammunition, a firearm or other dangerous weapon. 5. As directed by the Probation Office, the defendant shall notifY third parties of risks that may be occasioned by the defendant's criminal record or personal history or characteristics, and shall permit the Probation Office to make such notifications and to confirm the defendant's compliance with such notification requirement. 6. Until his criminal debt obligation is satisfied, the defendant shall close all other savings/checking accounts, transfer all assets into one main bank account and shall not add any new account holders to that account (the account may include the defendant's spouse if there are joint mar ita I assets/expenses). The defendant sha II provide the Probation Officer with electronic "read only" access to any online management of the account. The defendant shall provide the final statement from each account that is closed to ensure that no funds are dissipated during the closing of existing accounts and opening of the single account. 7. The defendant shall not encumber personal homes or investment properties without express permission ofthe Court, and shall not transfer, sell, give away, barter, or dissipate in any way any assets, including personal property (ie: motor vehicles, recreational vehicles) without the express permission of the Probation Office. A241 8. The defendant shall obtain and maintain full time emp loyment. Case 3:13-cr-00019-JCH Document 542 Filed 05/02/17 Page 2 of 4 A0245b (USDC-CT Rev. 9/07) Page 2 CRIMI NAL MONETARY P ENALTI ES The defendant must pay the total criminal monetary penalties under the schedule of payments (as follows) or (as noted on the restitution order). S pecia l Assessment: $ 100 to be paid immediately. F ine: $2,000,000 T he defendant shall pay a fine in the amount of $2,000,000, payable in a lump sum immediately. If the fine is not paid in full within 30 days, interest shall accrue at the legal T-8 ill rate. Any amount that remains unpaid at the commencement of supervised release shall be paid at a rate of no less than 10% of the defendant's net income per month. The monthly payment schedule may be adjusted based on the defendant's abi lity to pay as determined by the Probation Office and approved by the court. It is further ordered that the defendant will notify the United States Attorney for this district with in 30 days of any change of name, residence or mailing address until all fines, restitution, costs and special assessments imposed by this judgment, are paid. J UDIC IAL RECOMMENDATION($) TO TH E BUREAU OF PRISO NS The d efendant sha ll self surrender no soon er than September 1 I, 2017 and no later than September 22, 2017. In the event the defendant d oes not r eceive d esignation by the Bureau of Prisons by September 22, 2017, the d efenda nt must self surrender to the United States Marsh a l, at Mia mi, Flo rida, by noon on September 22, 2017. The court strongly recommends the defendant be designated to the camp facility in Pensacola, Florida. 4/26/201 7 Date of Imposition of Sentence/S/Janet C. Hall United ~s District Judge Date: vfz/!J A242 Case 3:13-cr-00019-JCH Document 542 Filed 05/02/17 Page 3 of 4 A0245b (USDC-CT Rev. 9/07) Page 3 CONDITIONS OF SUPERVISED RELEASE In addition to the Standard Conditions listed below, the following indicated (•) Mandatory Conditions are imposed: MANDATORY CONDITIONS (1) You must not commit another federal, state or local crime. (2) You must not unlawfully possess a controlled substance. (3) You must refrain from any unlawful use of a controlled substance. You must submit to one drug test within 15 days of release from imprisonment and at least two periodic drug tests thereafter, as determined by the court. o The above drug testing condition is suspended, based on the court's determination that you pose a low risk of future substance abuse. (check if applicable) (4) • You must cooperate in the collection of DNA as directed by the probation officer. (check if applicable) (5) o You must comply with the requirements of the Sex Offender Registration and Notification Act (42 U.S.C. § 16901, et seq.) as directed by the probation officer, the Bureau of Prisons, or any state sex offender registration agency in which you reside, work, are a student, or were convicted of a qualifying offense. (check if applicable) (6) o You must participate in an approved program for domestic violence. (check if applicable) STANDARD CONDITIONS As part of your supervised release, you must comply with the following standard conditions of supervision. These conditions are imposed because they establish the basic expectations for your behavior while on supervision and identify the minimum tools needed by probation officers to keep informed, report to the court about, and bring about improvements in your conduct and condition. 1. You must report to the probation office in the federal judicial district where you are authorized to reside within 72 hours of your release from imprisonment, unless the probation officer instructs you to report to a different probation office or within a different time frame. 2. After initially reporting to the probation office, you will receive instructions from the court or the probation officer about how and when you must report to the probation officer, and you must report to the probation officer as instructed. 3. You must not knowingly leave the federal judicial district where you are authorized to reside without first getting permission from the court or the probation officer. 4. You must answer truthfully the questions asked by your probation officer. 5. You must live at a place approved by the probation officer. If you plan to change where you live or anything about your living arrangements (such as the people you live with), you must notify the probation officer at least 10 days before the change. If notifying the probation officer in advance is not possible due to unanticipated circumstances, you must notify the probation officer within 72 hours of becoming aware of a change or expected change. 6. You must allow the probation officer to visit you at any time at your home or elsewhere, and you must permit the probation officer to take any items prohibited by the conditions of your supervision that he or she observes in plain view. 7. You must work full time (at least 30 hours per week) at a lawful type of employment, unless the probation officer excuses you from doing so. If you do not have full-time employment you must try to find full-time employment, unless the probation officer excuses you from doing so. If you plan to change where you work or anything about your work (such as your position or your job responsibilities), you must notify the probation officer at least 10 days before the change. If notifying the probation officer at least 10 days in advance is not possible due to unanticipated circumstances, you must notify the probation officer within 72 hours of becoming aware of a change or expected change. 8. You must not communicate or interact with someone you know is engaged in criminal activity. If you know someone has been convicted of a felony, you must not knowingly communicate or interact with that person without first getting the permission of the probation officer. 9. If you are arrested or questioned by a law enforcement officer, you must notify the probation officer within 72 hours. 10. You must not own, possess, or have access to a firearm, ammunition, destructive device, or dangerous weapon (i.e., anything that was designed, or was modified for, the specific purpose of causing bodily injury or death to another person such as nunchakus or lasers). 11. You must not act or make any agreement with a law enforcement agency to act as a confidential human source or informant without first getting the permission of the court. 12. You must follow the instructions of the probation officer related to the conditions of supervision A243 Case 3:13-cr-00019-JCH Document 542 Filed 05/02/17 Page 4 of 4 A0245b (USDC-CT Rev. 9/07) Page 4 Upon a finding of a violation of supervised release, I understand that the court may (1) revoke supervision and impose a term of imprisonment, (2) extend the term of supervision, and/or (3} modify the conditions of supervision. These conditions have been read to me. I fully understand the conditions and have been provided a copy of them. (Signed)_________________________________________________________________________ Defendant Date U.S. Probation Officer Designated Witness Date CERTIFIED AS A TRUE COPY ON THIS DATE:---------By:----~------­ Deputy Clerk RETURN I have executed this judgment as follows: Defendant delivered on-------------to--------------------------a---------------------with a certified copy of this judgment. Brian Taylor Acting United States Marshal By Deputy Marshal A244 A245 A246 A247 Case 3:13-cr-00019-JCH Document 556 Filed 05/19/17 Page 1 of 8 UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT UNITED STATES OF AMERICA: Crim. No. 3:13CR19(JCH): v.:: JESSE C. LITVAK: May 19, 2017 MEMORANDUM IN OPPOSITION TO DEFENDANT’S MOTION FOR RELEASE PENDING APPEAL The United States submits this opposition to the defendant Jesse C. Litvak’s motion for release pending appeal [Doc. #551]. Because Litvak has not raised a substantial question of law or fact, and none of his arguments is likely to result in reversal or an order for a new trial, he has not met the statutory requirements for bail pending appeal. His motion should be denied. LEGAL STANDARD Under 18 U.S.C. § 3143(b), a district court must order a convicted defendant detained pending appeal unless it determines that (1) there is clear and convincing evidence "that the defendant is not likely to flee or pose a danger to the safety of any other person or the community if released"; (2) "the appeal is not for purpose of delay"; (3) "the appeal raises a substantial question of law or fact"; and (4) if the appeal is decided in the defendant’s favor, it is "likely to result in reversal or an order for a new trial." See United States v. Randell, 761 F.2d 122, 124-25 (2d Cir. 1985). A "substantial question" is one that is "close" or "very well could be decided the other way." Id. at 125 (quotation marks omitted). If the Court finds that a question to be "substantial," it must then determine "whether that question is so integral to the merits of the conviction on which defendant is to be imprisoned that a contrary appellate holding is likely to require reversal of the conviction or a new trial." Id. (quotation marks omitted). The defendant bears the burden of establishing all of the criteria for release pending appeal. Id.; see A248 Case 3:13-cr-00019-JCH Document 556 Filed 05/19/17 Page 2 of 8 also United States v. Abuhamra, 389 F.3d 309, 319 (2d Cir. 2004) (recognizing statutory "presumption in favor of detention" following conviction). ARGUMENT In his short memorandum, Litvak merely lists (without arguing) nine purported errors by the Court. Under the applicable standards of review, none is a "close" or "fairly debatable" question of law or fact, and none is likely to result in the Second Circuit reversing or ordering a third trial. A. The Government’s Evidence Was Sufficient First, Litvak states that there was insufficient the evidence for his conviction on Count Four. Litvak is wrong, and clearly so. A defendant bears a "heavy burden" given the "exceedingly deferential standard of review" applied by the Court of Appeals to sufficiency claims. United States v. Anderson, 747 F.3d 51, 59 (2d Cir. 2014) (citations and quotation marks omitted). After viewing "the evidence in a light that is most favorable to the government, and with all reasonable inferences resolved in favor of the government," a court "must uphold a conviction if any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Anderson, 747 F.3d at 59-60 (emphasis in original, quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979), inter alia). "[T]he only question under Jackson is whether that finding [of guilt] was so insupportable as to fall below the threshold of bare rationality." Coleman v. Johnson, 132 S. Ct. 2060, 2065 (2012) (per curiam). The Government’s evidence to convict on Count Four plainly met this standard. The Court evaluated Litvak’s motion for judgment of acquittal—which focused exclusively on materiality—in its April 17, 2017 Ruling Re: Motion For Judgment Of Acquittal Or, In The Alternative, A New Trial [Dkt. 533]. The Court’s decision summarized the relevant evidence,-2-A249 Case 3:13-cr-00019-JCH Document 556 Filed 05/19/17 Page 3 of 8 applied the appropriate law, and reached a reasoned result. Given the Second Circuit’s prior decision in this case concerning the sort of victim testimony that is sufficient to establish materiality, United States v. Litvak, 808 F.3d 160, 175-76 (2d Cir. 2015), Litvak could never overcome his heavy burden of demonstrating that there was insufficient evidence of materiality on this record. Accordingly, an appeal based on the sufficiency of the evidence will not raise a substantial question of fact or law. B. The Court’s Evidentiary Rulings Were Correct Next, Litvak states that the Court abused its discretion in four evidentiary rulings: 1) allowing testimony that victims perceived Litvak to be acting as their agent; 2) admitting evidence regarding victims’ investors; 3) precluding evidence regarding conduct at other broker-dealers without either the victims’ or Litvak’s knowledge; and 4) excluding evidence regarding the Government’s investigative techniques. The Court’s ruling on each of these was proper, but even if not, any error was harmless. A district court’s evidentiary rulings are afforded great deference in recognition of its "superior position to assess relevancy and to weigh the probative value of evidence against its potential for unfair prejudice." United States v. Abu-Jihaad, 630 F.3d 102, 131 (2d Cir. 2010). The Court of Appeals "will reverse an evidentiary ruling only for abuse of discretion, which [it] will identify only if the ruling was arbitrary and irrational." Id. (quotations and citations omitted). "Errors are not grounds for reversal if they are harmless, i.e., if there is'fair assurance’ that the'judgment was not substantially swayed by the error.’" United States v. Gonzalez, 764 F.3d 159, 168 (2d Cir. 2014) (citation omitted). Litvak’s four evidentiary issues were the subject of motions in limine that were analyzed by the Court at length in its June 26, 2016 Ruling Re: Motions In Limine [Dkt. #432]. In each-3-A250 Case 3:13-cr-00019-JCH Document 556 Filed 05/19/17 Page 4 of 8 instance, the Court applied well-established evidentiary law to a set of facts that it was uniquely well-suited to evaluate, given its understanding of the evidence from Litvak’s first trial. In some respects, the Court even agreed with Litvak’s arguments on these motions, granting each motion in part and denied it in part. None of the Court’s rulings was "arbitrary and irrational," but even if any were, none imposed such a grievous handicap on Litvak as to give rise to a "fair assurance" that the jury’s verdict was "substantially swayed by the error." Accordingly, an appeal based on Litvak’s evidentiary complaints will not raise a close question, and is unlikely to result in reversal or a new trial. C. The Jury Charge Was An Accurate Statement Of The Law Next, Litvak states that the Court erred in instructing the jury on the elements of securities fraud. At trial, Litvak raised only four objections to the Court’s jury charge. See Trial Tr. at 1516:4-23. Read as a whole, the Court’s jury instructions properly stated the law. The Court of Appeals reviews jury instructions to which a defendant objected de novo. United States v. Wilkerson, 361 F.3d 717, 732 (2d Cir. 2004). If there is error, the Court of Appeals will vacate a criminal conviction only if the error prejudiced the defendant by misstating the law. United States v. Ferguson, 676 F.3d 260, 275 (2d Cir. 2011). Instructions are reviewed in their entirety to determine "whether, on the whole, they provided the jury with an intelligible and accurate portrayal of the applicable law." United States v. Weintraub, 273 F.3d 139, 151 (2d Cir. 2001). Even if a particular instruction or portion thereof is deficient, the Court of Appeals reviews "the entire charge to see if the instructions as a whole correctly comported with the law." United States v. Jones, 30 F.3d 276, 283 (2d Cir. 1994). Here, the Court meticulously crafted its charge to the jury. It was based on a charge which the Second Circuit had examined and found (at least in relevant part) to be proper; it incorporated nearly verbatim the statement of the law of materiality from binding cases; it was-4-A251 Case 3:13-cr-00019-JCH Document 556 Filed 05/19/17 Page 5 of 8 the result of an iterative process that accommodated the parties’ views. Indeed, the Court even went so far as to create a fourth element of securities fraud to oblige the defense’s focus on materiality. Litvak has previously admitted that three of his four arguments are at odds with Second Circuit law. Trial Tr. 686:19-692:10. Given the scrutiny applied by the Court and the parties (and the Second Circuit) to these jury instructions, the Court can be confident that the Court of Appeals will read the whole charge as an accurate statement of the law of securities fraud. Accordingly, an appeal of the Court’s jury instruction will not raise a close question, and is not likely to result in reversal or a third trial. D. The Court’s Sentencing Process and Decision Were Not Erroneous Finally, Litvak states that the Court erred in three respects in his sentencing: 1) in its guidelines calculations; 2) in failing to take into account the nine counts of acquittal; and 3) in imposing a more severe sentence than it did in 2014. The Court’s decisions on these sentencing matters was within its discretion and consistent with the law, and thus did not raise a close question. On appeal, a district court’s sentencing decisions are reviewed for reasonableness under a "deferential abuse-of-discretion standard." Gall v. United States, 552 U.S. 38, 41 (2007); see also United States v. Watkins, 667 F.3d 254, 260 (2d Cir. 2012). "This form of appellate scrutiny encompasses two components: procedural review and substantive review." United States v. Cavera, 550 F.3d 180, 189 (2d Cir. 2008) (en banc). "A district court commits procedural error where it... makes a mistake in its Guidelines calculation... or rests its sentence on a clearly erroneous finding of fact." Id. at 190. "[W]hen conducting substantive review, [the Second Circuit] take[s] into account the totality of the circumstances, giving due deference to the sentencing judge’s exercise of discretion, and bearing in mind the institutional-5-A252 Case 3:13-cr-00019-JCH Document 556 Filed 05/19/17 Page 6 of 8 advantages of the district court." Id. Appellate "review of a sentence for substantive reasonableness is particularly deferential" in part because of "a district court’s unique factfinding position, which allows it to hear evidence, make credibility determinations, and interact directly with the defendant (and, often, with his victims), thereby gaining insights not always conveyed by a cold record." United States v. Broxmeyer, 699 F.3d 265, 289 (2d Cir. 2012). Before imposing sentence on Litvak, the Court conducted a nearly five-hour hearing, during which the parties elaborated on the factual and legal arguments raised in their thorough sentencing memoranda. The Court was uniquely suited to find the "facts relevant to sentencing by a preponderance of the evidence," United States v. Vaughn, 430 F.3d 518, 526 (2d Cir. 2005), given its knowledge of the evidence adduced at Litvak’s two trials and of the facts that had changed since his first sentencing. The Court applied those facts to determine the applicable sentencing range after deciding the contested guidelines issues, namely whether Litvak’s nine acquitted and 65 uncharged fraudulent trades were "relevant conduct," whether he had caused "loss" amounting to more than $6.3 million, and whether he had 35 victims. Based on its consideration of all the facts regarding Litvak’s background, character, and conduct, 18 U.S.C. § 3661, and the statutory sentencing factors, 18 U.S.C. § 3553(a), the Court chose to depart dramatically from the guidelines to impose a somewhat more severe sentence than Litvak originally received, based on the new facts which the Court identified. Wasman v. United States, 468 U.S. 559, 572 (1984) ("[A] sentencing authority may justify an increased sentence by affirmatively identifying relevant conduct or events that occurred subsequent to the original sentencing proceeding."); United States v. Weingarten, 713 F.3d 704, 714 (2d Cir. 2013) ("[w]e have previously found no reasonable likelihood of vindictiveness where the sentencing court'predicated its increased sentence on events which occurred subsequent to the original sentencing-6-A253 Case 3:13-cr-00019-JCH Document 556 Filed 05/19/17 Page 7 of 8 proceeding’"); United States v. Coke, 404 F.2d 836, 845 (2d Cir. 1968) ("[A]fter a retrial at the defendant’s instance, the court may permissibly increase a sentence, just as it may reduce one, in light of his conduct since sentence was initially passed."). The Court’s sentencing was thus procedurally and substantively appropriate. Accordingly, an appeal of the Court’s sentencing will not raise a close question. CONCLUSION None of the nine potential appellate issues identified by Litvak amounts to a substantial question of law or fact, and none is likely to result in a reversal of his conviction or remand for a new trial. Because he has failed to satisfy the required statutory criteria for bail pending appeal, the Government respectfully requests that the Court deny Litvak’s motion. Respectfully submitted, DEIRDRE M. DALY UNITED STATES ATTORNEY/s/JONATHAN N. FRANCIS ASSISTANT UNITED STATES ATTORNEY Federal Bar No. phv05083 jonathan.francis@usdoj.gov WILLIAM J. NARDINI ASSISTANT UNITED STATES ATTORNEY Federal Bar. No. ct16012 william.nardini@usdoj.gov HEATHER L. CHERRY ASSISTANT UNITED STATES ATTORNEY Federal Bar No. phv07037 heather.cherry@usdoj.gov 157 Church Street, 25th Floor New Haven, CT 06510 Tel.: (203) 821-3700-7-A254 Case 3:13-cr-00019-JCH Document 556 Filed 05/19/17 Page 8 of 8 CERTIFICATE OF SERVICE I hereby certify that on May 19, 2017, a copy of the foregoing was filed electronically. Notice of this filing will be sent by e-mail to all parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s CM/ECF System./s/JONATHAN N. FRANCIS ASSISTANT UNITED STATES ATTORNEY-8-A255 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 1 of 10 UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT UNITED STATES OF AMERICA:: CRIMINAL CASE NO. v.: 3:13–cr–19 (JCH): JESSE C. LITVAK,: JUNE 6, 2017 Defendant.: RULING RE: MOTION FOR RELEASE PENDING APPEAL (DOC. NO. 551) I. INTRODUCTION A federal jury found defendant Jesse Litvak ("Litvak") guilty of one count of securities fraud, while finding him not guilty of nine counts of securities fraud, on January 27, 2017. See Jury Verdict (Doc. No. 510) at 1–2. The court denied Litvak’s Motion for Judgment of Acquittal or, in the Alternative, a New Trial, see generally Ruling Re: Mot. for J. of Acquittal or, in the Alternative, a New Trial ("Mot. for Acquittal Ruling") (Doc. No. 533), and sentenced Litvak to twenty-four months in prison, see Judgment (Doc. No. 542). The court has ordered Litvak to surrender himself at a place and time designated by the Bureau of Prisons between September 11, 2017 and September 22, 2017. See Tr. of Sentencing Hr’g (Doc. No. 539) at 176:10–176:16. Litvak filed a Notice of Appeal from the Judgment of this court on May 3, 2017. See generally Notice of Appeal (Doc. No. 546). Litvak’s Motion for Release Pending Appeal is currently pending. See generally Mot. for Release Pending Appeal ("Motion") (Doc. No. 551). The government has opposed Litvak’s Motion, see generally Mem. in Opp’n to Def.’s Mot. for Release Pending Appeal ("Opp’n" or "Opposition") (Doc. No. 556), and Litvak filed a brief Reply, see Reply in Supp. of Mot. for Release Pending Appeal ("Reply") (Doc. No. 557) at 1. 1 A256 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 2 of 10 For the reasons set forth below, Litvak’s Motion is DENIED. II. LEGAL STANDARD The parties agree that section 3143(b) of title 18 of the United States Code ("section 3143(b)") sets forth the standard the court is to apply in ruling on the Motion. See Mem. in Supp. of Mot. for Release Pending Appeal ("Mem. in Supp." or "Memorandum") (Doc. No. 551-1) at 1; Opp’n at 1. Section 3143(b) requires that the court order the release of a defendant pending appeal if it finds: (A) by clear and convincing evidence that the person is not likely to flee or pose a danger to the safety of any other person or the community if released...; and (B) that the appeal is not for the purpose of delay and raises a substantial question of law or fact likely to result in— (i) reversal, (ii) an order for a new trial, (iii) a sentence that does not include a term of imprisonment, or (iv) a reduced sentence to a term of imprisonment less than the total of the time already served plus the expected duration of the appeal process. 18 U.S.C. § 3143(b)(1). The Second Circuit has defined a "substantial question" as "one of more substance than would be necessary to a finding that it was not frivolous," "a close question or one that very well could be decided the other way." United States v. Randell, 761 F.2d 122, 125 (2d Cir. 1985) (quoting United States v. Giancola, 754 F.2d 898, 901 (11th Cir. 1985)); see also United States v. Perotti, No. 3:14–cr–215 (JAM), 2016 WL 6987069, at *1 (D. Conn. Oct. 25, 2016) (citing Randell, 761 F.2d at 125). If the court determines that a question is "substantial," within the meaning of section 3143(b), it must then decide "whether that question is so integral to the merits of the conviction on which [the] defendant is to be imprisoned that a contrary appellate 2 A257 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 3 of 10 holding is likely to require reversal of the conviction or a new trial." Randell, 761 F.2d at 125 (quotation marks and citation omitted). The burden of persuasion as to each element of section 3143(b) rests on the defendant. See id.; cf. United States v. Abuhamra, 389 F.3d 309, 317 n.5, 319 (2d Cir. 2004) (describing section 3143(b) as imposing a heavier burden than 18 U.S.C. § 3143(a), which "establishes a presumption in favor of detention" following conviction but before sentencing). III. DISCUSSION The government does not suggest that Litvak is likely to flee or that he poses any threat to the community if released. The court agrees: Litvak has been free on bail for the last four years, and there has been no indication that Litvak was likely or intended to flee, or that he posed any risk to others in his community.1 Therefore, the issue before the court is whether the issues Litvak intends to raise in his pending appeal are "substantial" ones that justify release pending appeal. Litvak lists nine "key issues that will be raised on appeal," each coupled with a cross-reference to arguments set forth in earlier briefing and court proceedings that he incorporates by reference. See Mem. in Supp. at 1–2. Notably, Litvak offers no new argument in his Memorandum as to the significance of the court’s alleged errors: he simply claims error and points the court to arguments already considered and rejected by the court. 1 There was an incident concerning a victim that occurred while Litvak’s first appeal was pending. However, the court does not view that as raising at this point a question of whether Litvak is a "risk" to others’ safety. 3 A258 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 4 of 10 None of the questions Litvak raises are "substantial" ones justifying release pending appeal. A. Sufficiency of the Evidence First, Litvak suggests that the question of whether the evidence was sufficient for the jury to return a guilty verdict on Count Four is a substantial one. See Mem. in Supp. at 1. Not so. In Litvak’s first appeal, the Second Circuit noted that courts "must view the evidence in the light most favorable to the Government, crediting every inference that could have been drawn in the Government’s favor, and deferring to the jury’s assessment of witness credibility and its assessment of the weight of the evidence." United States v. Litvak, 808 F.3d 160, 170 (2d Cir. 2015) (quoting United States v. Brock, 789 F.3d 60, 63 (2d Cir. 2015)). "[T]he standard of review is exceedingly deferential." Id. at 169 (quoting Brock, 789 F.3d at 63). Applying the appropriate measure of deference to the jury’s findings, the court has previously concluded that the evidence was more than sufficient for the jury to convict Litvak on Count Four. See generally Mot. for Acquittal Ruling (Doc. No. 533) at 6–26. The court will not repeat the multifarious reasons it has already rejected Litvak’s arguments, particularly because Litvak has not offered any new ones. However, the court notes that it was not—and is not—of the view that the sufficiency question is a close one. Though the evidence from the second trial alone must bear the weight of the conviction, the Second Circuit has made clear that, as a general matter, testimony from counterparties that they considered Litvak’s statements "important" "precludes a finding that no reasonable mind could find Litvak’s statements material." 4 A259 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 5 of 10 See Litvak, 808 F.3d at 175–76 (citations omitted). Such testimony was given at the second trial. Therefore, the question of the sufficiency of the evidence is not a substantial one. B. Evidentiary Rulings Litvak also suggests that several of this court’s evidentiary rulings will be "key issues" on appeal, reflecting a belief that these alleged errors might support release pending appeal. See Mem. in Supp. at 1–2. Litvak believes the court: (1) should not have permitted testimony that victims perceived him as acting as their agent; (2) should not have admitted evidence regarding the identity of investors in Litvak’s counterparties’ funds; (3) should not have "exclude[ed] evidence of industry practice"; and (4) should not have "restrict[ed] the defense’s cross-examination of Agent O’Connor." See id. The district court’s evidentiary rulings are reviewed "under a deferential abuse of discretion standard," and will be disturbed "only where the decision to admit or exclude evidence was manifestly erroneous." Litvak, 808 F.3d at 179 (quoting United States v. McGinn, 787 F.3d 116, 127 (2d Cir. 2015)). "Moreover, even if a ruling was manifestly erroneous, [the circuit court] will still affirm if the error was harmless." Id. (quoting McGinn, 787 F.3d at 127). "[U]nder harmless error review, [the circuit court] ask[s] whether [it] can conclude with fair assurance that the errors did not substantially influence the jury." Id. at 184 (quoting United States v. Gupta, 747 F.3d 111, 133 (2d Cir. 2014)). The court has already conducted a thorough review of each of Litvak’s evidentiary arguments. See generally Ruling Re: Mots. in Limine (Doc. No. 432). In each case, the court applied the relevant statutes, Federal Rules of Evidence, and case 5 A260 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 6 of 10 law to the facts of this case, with which it was already quite familiar. As the government points out, "[i]n some respects, the [c]ourt [] agreed with Litvak’s arguments on these motions, granting each motion in part and den[ying] it in part." See Opp’n at 4. Moreover, in the event any of the court’s rulings could be considered "manifestly erroneous," none of them could have "substantially influenced the jury," such that the error would not be harmless. See Litvak, 808 F.3d at 179, 184. Therefore, the evidentiary issues Litvak plans to raise on appeal are not "substantial" questions that justify release pending that appeal. C. Jury Charge Next, Litvak states that he will renew his objections to the court’s instructions to the jury on the elements of securities fraud. See Mem. in Supp. at 2. The Court of Appeals will review "a claim of error in jury instructions de novo, reversing only where, viewing the charge as a whole, there was prejudicial error." United States v. Sheehan, 838 F.3d 109, 121 (2d Cir. 2016) (quoting United States v. Aina-Marshall, 336 F.3d 167, 170 (2d Cir. 2003)). The Second Circuit has further explained this standard of review: In conducting that review [of claimed error in jury instructions], we examine the charge as a whole to see if the entire charge delivered a correct interpretation of the law. An erroneous instruction, unless harmless, requires a new trial. An error is harmless only if it is clear beyond a reasonable doubt that a rational jury would have found the defendant guilty absent the error. United States v. Sheehan, 838 F.3d 109, 121 (2d Cir. 2016) (quotation marks and citations omitted). The court has repeatedly considered and rejected Litvak’s claims of error in the jury instructions, many of which posit arguments that are directly contrary to Second 6 A261 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 7 of 10 Circuit precedent. See, e.g., Mot. for Acquittal Ruling at 25–26. As such, Litvak has not carried his burden in persuading the court that error(s) in the jury instructions give rise to a substantial question likely to result in reversal of his conviction. D. Sentencing Finally, Litvak alludes to three alleged errors in the sentence imposed on him as justification for release pending appeal: (1) that the court erred in its determination of "relevant conduct" and "loss" in calculating the Sentencing Guidelines, and by considering acquitted conduct; (2) that the court did not adequately consider the jury’s acquittal on nine of the ten securities fraud counts in determining a proper sentence; and (3) that the court erred by imposing a more severe sentence than it did after the first trial. See Mem. in Supp. at 2. So long as a district court complies with the procedural requirements in sentencing proceedings, the court will "set aside a district court’s substantive determination only in exceptional cases where the trial court’s decision cannot be located within the range of permissible decisions." United States v. Cavera, 550 F.3d 180, 189 (2d Cir. 2008) (en banc) (quotation marks and citation omitted). "A district court commits procedural error where it fails to calculate the Guidelines range..., makes a mistake in its Guidelines calculation, or treats the Guidelines as mandatory." Id. at 190 (citations omitted). "It also errs procedurally if it does not consider the § 3553(a) factors, or rests its sentence on a clearly erroneous finding of fact" or if it "fails adequately to explain its chosen sentence...." Id. (citations omitted). The Circuit Court will identify as substantively unreasonable "only those sentences that are so'shockingly high, shockingly low, or otherwise unsupportable as a matter of law’ that 7 A262 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 8 of 10 allowing them to stand would'damage the administration of justice.’" United States v. Broxmeyer, 699 F.3d 265, 289 (2d Cir. 2012) (quoting United States v. Rigas, 583 F.3d 108, 123 (2d Cir. 2009)). The court conducted a lengthy hearing before imposing sentence on Litvak, at which it heard argument (in addition to receiving written briefing) and ultimately rejected many of Litvak’s legal arguments. The court also made many factual findings that were not favorable to him. However, based on controlling law, there is not a substantial question that the court erred in determining the "relevant conduct" and "loss" for the purposes of the Sentencing Guidelines or by considering acquitted conduct.2 Regarding the court’s alleged failure to consider the fact that the jury acquitted Litvak, that argument is entirely belied by the court’s explicit discussion of that fact throughout the lengthy Sentencing Hearing and specifically in imposing sentence. See, e.g. Tr. of Sentencing Hr’g (Doc. No. 539) at 166:19–167:10. Finally, Litvak suggests he should be released pending appeal because the court "erred in imposing a sentence more severe than the one it imposed in 2014." See Mem. in Supp. at 2. There is no substantial question that where, as here, there are different facts before the court when sentencing a defendant for a second time, the court may impose a greater sentence. See Wasman v. United States, 468 U.S. 559, 572 (1984) ("[A] sentencing authority may justify an increased sentence by affirmatively identifying 2 Relatedly, the court sentenced Litvak to a term of incarceration well below that suggested by the Guidelines, the calculation of which was driven in large part by the loss table. Cf. Tr. of Sentencing Hr’g (Doc. No. 539) at 89:12–89:15 (expressing view of court that "the guideline [range is] not as helpful as it might otherwise be in some other cases"). 8 A263 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 9 of 10 relevant conduct or events that occurred subsequent to the original sentencing proceedings." (citation omitted)). Even the case Litvak cites is consistent with this proposition. See United States v. Bryce, 287 F.3d 249, 256 (2d Cir. 2002) ("When a court increases a defendant’s sentence after appeal without new evidence or information, a presumption of vindictiveness applies that can be overcome by objective information in the record justifying the increased sentence." (emphasis added) (citation omitted)). The court extensively discussed circumstances that had changed between the sentencing after the first trial and the one after the second, and on the ways those changed circumstances informed the sentence ultimately imposed. See Tr. of Sentencing Hr’g at 165:17–168:22, 169:16–170:20, 171:5–171:23. In any event, the court imposed the same term of incarceration after the second trial as it did after the first: twenty-four months. Compare Judgment (Doc. No. 275) at 1, with Judgment (Doc. No. 542) at 1. The only portion of the sentence that was "more severe" was the fine amount. It is somewhat unclear why, even if the court erred in imposing a greater fine, Litvak believes the Court of Appeals would order "(i) reversal, (ii) an order for a new trial, (iii) a sentence that does not include a term of imprisonment, or (iv) a reduced sentence to a term of imprisonment less than the total of the time already served plus the expected duration of the appeal process." See 18 U.S.C. § 3143(b)(1)(B). Regardless, the court carefully considered the factors relevant to imposition of a fine as well as the changed circumstances that justified the higher fine. See Tr. of Sentencing Hr’g at 165:11–165:16, 171:5–171:23. 9 A264 Case 3:13-cr-00019-JCH Document 560 Filed 06/06/17 Page 10 of 10 IV. CONCLUSION Litvak suggests that the issues he intends to raise in his pending appeal "are at least as'substantial’ as those he raised in the first, when the Second Circuit granted his request for release pending appeal." Mem. in Supp. at 1. He also claims that release pending appeal "is particularly compelling in this case, given its history...." Id. at 2. As evidenced by the Circuit’s holding in Litvak’s first appeal, that appeal was meritorious. Nevertheless, there has not been any indication that the court did not comply with the Circuit’s instructions on remand. Thus, the fact that the Circuit granted him release during the pendency of his first appeal is not relevant now: the issues he intends to raise on appeal are different from those in the first appeal. However much Litvak believes he will succeed on this appeal, release during the appeal’s pendency is not appropriate, unless he can satisfy the criteria set out in section 3143(b). For the reasons set forth above, this court does not conclude that he has done so. Therefore, Litvak’s Motion for Release Pending Appeal (Doc. No. 551) is DENIED. SO ORDERED. Dated at New Haven, Connecticut, this 6th day of June, 2017. _/s/Janet C. Hall_________ Janet C. Hall United States District Judge 10 A265 CERTIFICATE OF SERVICE I, Kannon K. Shanmugam, counsel for defendant-appellant Jesse C. Lit-vak and a member of the Bar of this Court, certify that, on June 30, 2017, a copy of the attached Motion for Release Pending Appeal was filed electroni-cally through the appellate CM/ECF system with the Clerk of the Court. I further certify that all parties required to be served have been served./s/Kannon K. Shanmugam KANNON K. SHANMUGAM JUNE 30, 2017

OPPOSITION TO, for bail [{{24}}], on behalf of Appellee USA United States of America, FILED. Service date 07/17/2017 by CM/ECF. [2080463] [17-1464] [Entered: 07/17/2017 06:01 PM]

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT UNITED STATES OF AMERICA: DOCKET NO. 17-1464: v.:: JESSE C. LITVAK: July 17, 2017 MEMORANDUM IN OPPOSITION TO DEFENDANT’S MOTION FOR RELEASE ON BOND PENDING APPEAL The defendant, Jesse C. Litvak, has moved the Court for release on bond pending appeal. Because Litvak’s motion misstates the facts, disregards the applicable law and fails to establish that he is eligible for release pending appeal, the government respectfully submits that his motion should be denied. I. FACTUAL AND PROCEDURAL BACKGROUND1 Litvak was a licensed securities broker who perpetrated a multi-year, multi-victim, multi-million dollar scheme to defraud customers of his employer, Jefferies & Co., Inc. ("Jefferies"), by making misrepresentations in the purchase and sale of residential mortgage-backed securities ("RMBS"), a type of bond. Litvak’s victims included investment funds, hedge funds and Public-Private Investment Funds, which are investment vehicles established by the Department of Treasury after the financial The factual background is set forth in United States v. Litvak, 808 F.3d 160 (2d 1 Cir. 2015) ("Litvak I"). crisis to purchase troubled assets—including RMBS—using Troubled Asset Relief Program ("TARP") money. As a broker, Litvak’s job at Jefferies was to buy and sell RMBS bonds for the firm’s own account ("inventory trades") and to facilitate trading between customers willing to buy and sell bonds (through "orders" or "bid lists"). In the latter transactions, Litvak used Jefferies’ account to purchase an RMBS bond from the seller and then sell it to the buyer, sometimes almost simultaneously. The RMBS bond market is unlike many other securities markets. There are no public records of the purchase and sale prices of the bonds. Buyers and sellers do not know one another’s identity, cannot communicate directly, and must negotiate through a broker-dealer, like Litvak. Thus, only Litvak knew both the price paid by the buyer and the price accepted by the seller. Litvak’s scheme took advantage of the structural opaqueness in the RMBS market by misrepresenting Jefferies’ purchase or sale price to fraudulently increase Jefferies’ profitability at the expense of customers. When selling bonds in certain "order" and "bid list" trades, Litvak misrepresented to buyers the price that Jefferies was paying the seller for a bond. These buyers agreed to pay Jefferies’ purchase price, plus a specifically negotiated commission. But Litvak, by falsely claiming that Jefferies’ purchase price was higher than it actually was, caused the buyer to-2-pay a fraudulently inflated purchase price so that Litvak could secretly take a larger than agreed-upon commission for Jefferies. Similarly, when buying bonds, Litvak misrepresented to the sellers the price at which Jefferies was selling the bond (the mirror image of the above). These sellers agreed to sell at Jefferies’ sale price, minus a specifically negotiated commission. By misrepresenting that Jefferies’ sale price was lower than it actually was, Litvak convinced the seller to accept a fraudulently deflated price so that Jefferies could secretly take a larger than agreed-upon commission. Litvak also made misrepresentations as to the true ownership of bonds in Jefferies’ inventory. Although he knew that Jefferies owned the bonds, Litvak misrepresented to certain buyers that he was negotiating to buy from a third-party seller. This misrepresentation falsely portrayed inventory trades as orders, which harmed buyers and benefitted Litvak and Jefferies because buyers paid a "match-making" commission, even though Litvak had not actually made a match. In January 2013, a grand jury indicted Litvak on sixteen counts of securities fraud, major fraud against the United States, and making false statements in a matter within the jurisdiction of Treasury.2 Litvak I, 808 F.3d at 166. On March 7, 2014, after a ten-day trial, a federal jury convicted Litvak of ten counts of securities fraud 2 Pre-trial, the district court dismissed one securities fraud count on the government’s motion.-3-under 15 U.S.C. §§ 78j(b) & 78ff, one count of TARP fraud under 18 U.S.C. § 1031, and four counts of making false statements in a matter within the jurisdiction of the United States Government in violation of 18 U.S.C. § 1001. Id. at 168-69. Litvak appealed his conviction on several grounds including: (1) insufficient evidence to provide a basis for a rational jury to conclude that his misstatements were material to the Department of Treasury, requiring a reversal of the TARP fraud and false statements counts; (2) his misstatements were, as a matter of law, immaterial to a reasonable investor, requiring a reversal of the securities fraud counts; and (3) the district court erroneously excluded expert testimony. This Court reversed the convictions on the false-statements and TARP-fraud counts, finding the evidence insufficient for a rational jury to conclude that Litvak’s misstatements were reasonably capable of influencing a decision of the Treasury. Litvak I, 808 F.3d at 172-74. As for the ten securities fraud counts, this Court held that Litvak’s misstatements were not immaterial as a matter of law and that based on the trial record, a rational jury could have found that his misstatements were material. Id. at 175-176 ("The trial record includes testimony from several representatives of Litvak’s counterparties that his misrepresentations were'important’ to them in the course of the transactions on which the securities fraud charges were predicated,... and that they or their employers were injured by those misrepresentations.... This testimony precludes a finding that no reasonable mind could find Litvak’s statements-4-material."). But because this Court also found that the district court erroneously excluded certain expert testimony and that the error was not harmless, it vacated the securities fraud convictions and remanded for a new trial. Id. at 180-90. In January of 2017, Litvak was retried on the ten securities fraud counts. He was convicted on Count Four, which charged Litvak with securities fraud in the July 1, 2010 trade of an RMBS bond known as SARM 2005-21 7A1, where Invesco, a money manager, bid on and purchased that bond in an auction known as a bid list or "BWIC" ("bids wanted in competition") through Litvak and Jefferies. Litvak was acquitted on the other nine securities fraud counts. As to the trade charged in Count Four, the evidence was straightforward: a counterparty was selling the SARM bond through a bid list auction process; Invesco’s portfolio manager, Brian Norris, instructed Litvak to bid a certain price (79-24, or 79 and 24 ticks, or 79.75 percent of face value)3 for the SARM bond; Litvak falsely told Norris that he had done so, and that Invesco’s bid had won. GA135-136. In fact, Litvak had bid a lower price and purchased the SARM bond at 79-16. Id. Yet in negotiating a commission from Invesco, Litvak falsely represented to Norris that his bid had won, meaning that Jefferies had paid 79-24. Id. Accordingly, when Norris agreed to pay an additional six ticks to compensate 3 Fractional pricing for RMBS trades is often expressed in "ticks," equal to 1/32 of a percentage point.-5-Jefferies for its service, making for an all-in price of 79-30 for the bond, it was based in large part on the inflated purchase price that Litvak falsely claimed to have paid. A147-48. Norris was one of the five victims that testified at Litvak’s retrial. With respect to Count Four, Norris testified that it would "have mattered to [him] if [he] had known that Jefferies bought the bond for 79-16," because that would mean that Invesco, "could buy the bond cheaper for [its] clients." A149, A150. He noted that it was "highly unlikely" that he would pay fourteen ticks—the difference between the price Jefferies actually paid for the bond (79-16) and the price at which Jefferies sold the bond to Invesco (79-30). A150. Norris also distinguished between what he called "principal" and "agency" trades based on the functional question of whether Jefferies was taking market risk or simply facilitating a trade between a buyer and seller. See A165 ("In a BWIC situation, [broker-dealers] serve as the intermediary. So [Invesco] view[s] that as an agency trade.").4 After being attacked on cross-examination for his lack of legal nuance, however, Norris made clear that Jefferies’ principal or agent capacity was irrelevant to his prior testimony that the misrepresented information "mattered" and was "important": 4 As a legal matter, Jefferies acted as principal in Litvak’s trades, as the government has always acknowledged.-6-Q. And whether Litvak was an agent or principal, did that make a difference to you as to whether you thought Litvak was telling the truth when he said he was using your bid? A. No, it does not. Q. And whether Litvak or--Mr. Litvak, excuse me, was an agent or a principal, did that make a difference to you as to whether you thought you were negotiating to pay Mr. Litvak on top of the price that he told you he bought the bond for? A. No, that doesn’t change. A203-A204. Regardless of Jefferies’ legal relationship with Invesco, Norris believed that Litvak was giving him truthful information and honestly negotiated payment on top of the price at which Jefferies purchased the bond. Beyond Norris’s testimony, the other victims also testified that Litvak’s lies were "important" (or were "significant," or "mattered," or "made a difference") and were to their investors’ detriment. See GA7-8, GA13-15, GA23-25, GA39-41, GA48-49, GA57-58 (Canter); GA81-82 (Corso); GA90-91, GA96-98 (Lemin); A149-150, A159-160 (Norris); GA108-113, GA116-117 (Wollman). Following the verdict, Litvak filed a Motion for Judgment of Acquittal or, in the Alternative, a New Trial; arguing, inter alia, that there was insufficient evidence to prove the materiality element of Count Four. The district court denied the motion. GA138. Specifically, the district court found that "there was sufficient evidence for the jury to conclude that Litvak’s misrepresentation about the price he bid substantially changed the amount Jefferies received in compensation and the amount-7-Norris paid. The jury could easily find, as it did find, that such an undisclosed increase in Jefferies’s compensation would have been'important [to the reasonable investor] in making an investment decision.’" GA154. Litvak was sentenced to 24 months’ imprisonment. Litvak moved for continued release pending his appeal. The district court denied the request, finding that "[n]one of the questions Litvak raises are'substantial’ ones justifying release pending appeal." A259. II. APPLICABLE LEGAL STANDARD Under 18 U.S.C. § 3143(b), a district court must order a convicted defendant detained pending appeal unless it determines that (1) there is clear and convincing evidence "that the defendant is not likely to flee or pose a danger to the safety of any other person or the community if released"; (2) "the appeal is not for purpose of delay"; (3) "the appeal raises a substantial question of law or fact"; and (4) if the appeal is decided in the defendant’s favor, it is "likely to result in reversal or an order for a new trial." See United States v. Randell, 761 F.2d 122, 124-25 (2d Cir. 1985). A "substantial question" is one that is "close," "fairly debatable," or "very well could be decided the other way." Id. at 125 (quotation marks omitted). The defendant bears the burden of establishing all of the criteria for release pending appeal. Id.; see also United States v. Abuhamra, 389 F.3d 309, 319 (2d Cir. 2004) (recognizing statutory "presumption in favor of detention" following conviction).-8-III. ARGUMENT Litvak argues that: (1) the evidence of materiality was insufficient; (2) this Court was wrong to hold in Litvak I that Litvak’s misrepresentations were not immaterial as a matter of law; and (3) the district court erred by admitting fact testimony that certain witnesses perceived Litvak to be acting as their agent and by excluding evidence of an industry practice at other broker-dealers to make similar misrepresentations. Under the applicable standards of review, these arguments do not present "close" or "fairly debatable" questions of law or fact that are likely to result in reversal. A. Litvak’s Misrepresentations Were Material to a Reasonable Investor Litvak first argues that there is a substantial question as to whether the government presented sufficient evidence that his misrepresentations in Count Four were material. While this Court reviews challenges to the sufficiency of evidence de novo, a defendant bears a "heavy burden" given the "exceedingly deferential" standard of review employed. United States v. Brock, 789 F.3d 60, 63 (2d Cir. 2015) (quoting United States v. Coplan, 703 F.3d 46, 62 (2d Cir. 2012)). The Court "must view the evidence in the light most favorable to the Government, crediting every inference that could have been drawn in the Government’s favor, and deferring to the jury’s assessment of witness credibility and its assessment of the weight of the evidence."-9-Id. The Court must uphold a conviction if "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Id. Under this standard, the evidence was plainly sufficient for a rational jury to find that Litvak’s lies were material. For securities fraud, a showing of materiality requires only "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the'total mix’ of information made available." Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988); United States v. Vilar, 729 F.3d 62, 88-89 (2d Cir. 2013) (defining materiality as "a substantial likelihood that a reasonable investor would find the omission or misrepresentation important in making an investment decision, and not actual reliance"). The government’s evidence of materiality (substantively similar, if not identical, to that in the record in Litvak I), met this threshold. Litvak’s victims testified that, at the time of the trade, Litvak’s lies were "important" or "significant," or "mattered," and were to their investors’ detriment. See supra at 7. Specifically as to Count Four, Norris testified that it "absolutely" would have mattered to him to know that Litvak bought the SARM bond for 8 ticks less than he had represented, "[b]ecause then we could buy the bond cheaper for our clients." A150. He went on to state that "absolutely it would be important" to know that Invesco was paying a 14-tick commission due to Litvak’s lie, rather than the 6 ticks-10-Norris and Litvak had negotiated, "[b]ecause it is significantly more than what we would typically pay for this type of transaction, so it is more money that our clients are paying for the bond." Id. As this Court wrote in Litvak I, "[t]his testimony precludes a finding that no reasonable mind could find Litvak’s statements material." 808 F. 3d at 176. Beyond this testimony, the evidence showed how Litvak’s lies materially affected his negotiations with Norris. After Litvak falsely stated that he had used Invesco’s bid, Norris offered to pay Jefferies an additional six ticks, to which Litvak replied, "6/32s is great." A149. As a result, Invesco paid Jefferies 70-30 for the SARM bond, which Norris understood to be Jefferies’ purchase price (79-24) plus a six-tick commission. Id. This evidence showed how Litvak’s lies adversely affected Norris’s behavior, and was itself sufficient for the jury to find Litvak’s lies to be material to a reasonable investor. To counter the government’s materiality evidence, Litvak argues that Norris’s testimony was tainted by his mistaken understanding of the legal relationship between Jefferies and Invesco. Norris’s confusion on this point of law was not fatal to the government’s theory or the sufficiency of its evidence. The point of the government’s proof regarding victims’ perception of Jefferies’ role was that it was a contributing factor in their reasonable decision to believe and act in reliance on Litvak’s statements. But, even if Norris’s confusion on this legal point-11-hypothetically rendered him a per se unreasonable investor for all purposes, that still would not call into question the jury’s guilty verdict on Count Four because "the jury is to evaluate materiality in an objective manner." Litvak I, 808 F.3d at 183-84. Based on the uniform victim testimony on the importance of misrepresented pricing information and the evidence of how Litvak financially injured Invesco and its investors in this particular trade, the jury could have found that Litvak’s lies would have been significant in the decision-making of an objectively reasonable investor engaged in the SARM trade charged in Count Four. See GA154 ("The evidence was sufficient for the jury to conclude that the objective investor, without any illusions as to Litvak’s status as a principal, would have considered Litvak’s lie as'meaningfully affect[ing] [that] reasonable investor’s consideration about whether to buy or sell, and at what price.’" (quoting jury instructions)). Litvak also argues that his lies to Norris cannot be material because Norris admitted that he bought the bond at a price he deemed acceptable and that if Litvak had followed his directive and bid 79-24, the outcome would have been the same. Litvak’s assertion that his lies "had no bearing on Invesco’s decision to transact at [79-30]," Mot. at 17, ignores the evidence. Norris testified that he seeks to always buy a bond at the lowest possible price, A204, and that it was highly unlikely he would have paid Jefferies a 14 tick commission for the SARM trade, A150. Had Litvak not lied, Norris would not have paid 79-30 for the bond. "The fact that Norris-12-ultimately bought the SARM bond, and had a range of prices at which he was willing to do so, does not negate the jury’s ability to conclude that Litvak’s lie—that he'bid [Norris’s] level,’... would affect a'reasonable investor’s consideration’ about'what price’ that investor would pay for that bond." GA155. Litvak cannot overcome his heavy burden of demonstrating that there was insufficient evidence of materiality on this record. Accordingly, an appeal based on the sufficiency of that evidence will not raise a substantial question of fact or law. B. Litvak’s Misrepresentations Were Not Immaterial as a Matter of Law Litvak again argues that his misstatements were immaterial as a matter of law and therefore could not form the basis for a securities fraud conviction. This argument was already rejected by this Court in Litvak I, and thus does not present a "close" or "fairly debatable" question of law. See Litvak I, 808 F.3d at 178; A259-260 ("Though the evidence from the second trial alone must bear the weight of the conviction, the Second Circuit has made clear that, as a general matter, testimony from counterparties that they considered Litvak’s statements'important’'precludes a finding that no reasonable mind could find Litvak’s statements material.’ Such testimony was given at the second trial.") (quoting Litvak I, 808 F.3d at 175-76). Litvak offers no new arguments to support his claim that his lies were immaterial as a matter of law. He simply doubles down on his previous argument that in each-13-transaction a sophisticated investor received the bond he wanted to purchase at a price he agreed to pay. In an effort to sidestep the Court’s previous ruling, Litvak simply asserts that Litvak I does not comport with the evidence at his second trial. Mot. at 14 ("the Court’s reasoning does not squarely apply to the second trial, where the counterparty for the only count of conviction determined (and disclosed at the outset) the price he was willing to pay for the bond…."). In fact, Litvak was convicted of Count Four on evidence similar to that in the record in Litvak I. In both trials Norris acknowledged that 79-30 was a price he was willing to pay for the SARM bond. See GA172 (Litvak I); A163, A187 (Litvak II). Litvak again relies primarily on Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir. 1996), to argue that his lies were immaterial as a matter of law. In Litvak I, the Court found "Feinman [] readily distinguishable from the case presented," 808 F. 3d at 176.5 Litvak offers no additional facts or argument to support his claim that this Court’s "distinction" is "without a difference." Mot. at 23. 5 Litvak also cites United States v. Weimert, 819 F.3d 351 (7th Cir. 2016), for the proposition that Litvak’s lies cannot be material to an investor’s decision to buy or sell a security. This case is also distinguishable. In Weimert, the Seventh Circuit held that the defendant company president did not commit wire fraud when he misrepresented to the board of directors that a proposed buyer of the company’s assets required him to participate in the acquisition deal. The Seventh Circuit found that the board was misled "only about the negotiating positions—the preferences, values, and priorities—of other parties," not about the assets or the consideration.-14-In its prior ruling, this Court distinguished the facts of this case from Feinman by noting three key differences. First, while "the brokers in Feinman did not mislead their customers as to what portion of the total transaction cost was going toward purchasing securities versus the cost of the broker’s involvement," Litvak I, 808 F.3d at 176, Litvak did exactly that. In Feinman, the brokers were "truthful in stating that a certain portion of the total transaction cost... was charged on behalf of the broker, and the rest of the transaction’s total cost was used to purchase securities." Id. In contrast, Litvak lied about the purchase price of the security to distort the market and defraud his customer. In Count Four, the evidence showed Norris explicitly negotiated the components of the transaction with Litvak, including Jefferies’ commission, based on Litvak’s false statements as to Jefferies’ acquisition price. Litvak’s misrepresentation of Jefferies’ acquisition price induced Norris to believe that six ticks of the total price paid by Invesco was the cost of the broker’s involvement, with the balance going toward purchasing the security. Rather than lying about the allocation of dollars within a known fee, Litvak lied to increase Invesco’s purchase price. Second, unlike in Feinman, the "amounts'pocket[ed]’ by Litvak on behalf of Jefferies in the transactions at issue were substantially larger than a'dollar or two’ 819 F.3d at 366. In contrast, Litvak lied to Norris about the consideration Jefferies paid to the seller, thus causing Invesco to unnecessarily increase the consideration it paid to Jefferies.-15-per transaction." Id. at 176. Specifically in Count Four, the evidence at trial established Litvak caused Invesco to pay an extra $73,000 by lying about Jefferies’ purchase price. A150. Norris testified that $73,000 "is a significant amount of money for [Invesco’s] clients." Id. And third, "the remedy for the behavior described in Feinman—competition among the firms in the labeling and pricing of their services—is not applicable to Litvak’s behavior." Litvak, 808 F.3d at 177 (internal citation and quotation marks omitted). This remains true: the evidence at trial showed that Litvak’s misrepresentations occurred in an opaque market, making them "virtually undiscoverable." Id. Litvak misstates the evidence when he argues that his misrepresentations were puffery and sales talk that were relevant only to negotiations. Litvak’s lies caused Norris to pay more when Invesco purchased the SARM bond so that Litvak could secretly take a larger commission. Litvak did not simply strike a deal with Norris to trade at a price of 79-30, although he could have conducted negotiations that way. Instead, Litvak chose to falsely claim that he had used Invesco’s 79-24 bid in the auction, then negotiate a separate commission to be added for Jefferies’ services. By lying to Norris about using Invesco’s bid, Litvak increased the price paid by Invesco, making the trade more profitable for Jefferies and less profitable for Invesco and its investors.-16-It is not a close or fairly debatable question that this Court was correct when it previously held that Litvak’s lies are not immaterial as a matter of law. C. The Evidentiary Rulings Below Were Not an Abuse of Discretion Litvak argues that the court abused its discretion in two evidentiary rulings: 1) allowing testimony that victims perceived Litvak to be acting as their agent; and 2) precluding evidence regarding conduct at other broker-dealers without either the victims’ or Litvak’s knowledge. A district court’s evidentiary rulings are afforded great deference in recognition of its "superior position to assess relevancy and to weigh the probative value of evidence against its potential for unfair prejudice." United States v. Abu-Jihaad, 630 F.3d 102, 131 (2d Cir. 2010). The Court of Appeals "will reverse an evidentiary ruling only for abuse of discretion, which [it] will identify only if the ruling was arbitrary and irrational." Id. (quotation marks and citations omitted). "Errors are not grounds for reversal if they are harmless, i.e., if there is'fair assurance’ that the'judgment was not substantially swayed by the error.’" United States v. Gonzalez, 764 F.3d 159, 168 (2d Cir. 2014) (citation omitted). 1.'Agency’ Testimony The district court allowed certain witnesses to testify that they believed Litvak was acting as their agent in certain kinds of bond transactions. This same argument was the subject of a motion in limine that was analyzed by the district court in its-17-June 6, 2016 Ruling Re: Motions in Limine. See A75-80. The district court denied the motion in part,6 finding that the testimony was "(1) relevant, and (2) more probative than prejudicial." A77. The district court stated that "these witnesses are testifying to their own point of view—i.e., what they understood their relationship to Litvak to be, based on the events leading up to these trades as they experienced them." Id. Other victims testified that they understood Jefferies to be acting as a principal. See e.g., GA63-64 (Canter); GA85 (Corso); GA119 (Wollman). Evidence as to whether and why they trusted Litvak or believed his representations was probative as to what an objectively reasonable investor would have thought, and thus relevant to the disputed issue of materiality. Moreover, the district court considered any prejudicial effect of this testimony. The district court wrote "this testimony is unlikely to confuse the jury or to be unduly prejudicial to Litvak, and any confusion or prejudice that could result can be ameliorated by cross-examination of the witnesses, the testimony of an expert witness for the defense, instruction to the jury that the witness’s testimony is not the law, or all three." A77. In fact, the district court saw that all three of these methods were employed at trial: (1) victims were cross-examined on the principal-to-6 The district court granted, absent objection by the government, the part of the motion that sought to preclude the government from arguing to the jury that Litvak was actually an agent of the counterparties.-18-principal relationship with Jefferies, see e.g., supra at 6-7, GA63-67 (Canter); GA85 (Corso); GA119 (Wollman); (2) Litvak’s expert testified that Jefferies always acted as a principal in these transactions, GA126; and (3) the jury charge instructed that "[i]n the transactions at issue in this case, Mr. Litvak was not the agent of the buyers or sellers of the RMBS.... Further when he sold an RMBS to another person, he was not the agent of that buyer." A229. Thus, the district court did not abuse its discretion in allowing this testimony, and it is not a close question otherwise on appeal. Moreover, in light of the multiple corrective steps taken at trial, even if admitting this testimony was error, it was harmless and would not result in reversal or a new trial. 2. Evidence of Industry Practice The district court excluded as irrelevant evidence that there was an industry practice of broker-dealers making misrepresentations to customers about price, unless Litvak could show knowledge by investors of such a practice. A81-86. To be clear, the district court ruled fact testimony of such an industry practice was permissible if a customer was aware of such a practice in the RMBS marketplace. See GA68 (Canter), GA101 (Lemin). In fact, the district court concurred with Litvak that "evidence that investors similarly situated to the counterparties in this case were aware that traders similarly situated to Litvak made misrepresentations of the kind Litvak is alleged to have made and were indifferent to that fact (or discounted the-19-information provided by traders on that basis) is relevant to materiality of the misrepresentations charged in the Indictment." A83. The district court only excluded industry practice evidence unknown to investors because "the fact that many (or all) RMBS broker-dealers engaged in the kinds of misrepresentations charged in the Indictment does not affect the likelihood of a reasonable investor viewing those misrepresentations as material (or immaterial) unless investors were aware that traders made these kinds of misrepresentations." A84-85 (emphasis in original). Moreover, the district court also concluded that, even if other broker-dealers’ practice of making misrepresentations (unbeknown to investors) was relevant under Rule 401, that evidence should be excluded as "confusing, misleading and prejudicial under Rule 403." Id. at 85. The district court found that "the probative value of evidence that there was an'industry practice’ of making the kinds of misrepresentations charged in the Indictment is'substantially outweighed’ by the risk that evidence will cause'unfair prejudice, confus[e] the issues, mislead[] the jury, [cause] undue delay, [and] wast[e] time." A86 (quoting Fed. R. Evid. 403). These evidentiary rulings were not an abuse of discretion, and it is not a close question otherwise. Even if the district court abused its discretion, any error would be harmless. Litvak admits as much by describing his industry evidence as "serv[ing] the same purpose as a defense expert’s opinion that a sell-side bond trader’s statements, such-20-as Litvak’s, would be widely considered within the industry as biased and unworthy of consideration in trading decisions." Mot. at 20-21 (quotation marks omitted). Litvak’s expert testified on this point at some length, as follows:  "If you can – if you can confirm, to you own satisfaction, that it is true, then it’s good information. If you can’t confirm that it is true, then you discount that information. You don’t know if it is true or not. It may be false." GA123-24;  "Well, if somebody says, well I bought this bond at 50 and he knows that that’s something that I want to buy, pretty much the only thing I can take from that that I know to be true is that he would like to get paid something more than 50 for me to buy it." GA126;  "And generally, if [broker-dealers] said they were working for me, I suspected they might be working on me rather for me to try to get me to transact because they make money when we do a trade." GA128. Thus, the district court’s ruling excluding testimony on an purported industry practice of lying unknown to investors was not an abuse of discretion, it is not a close question otherwise on appeal, and in any event would not result in reversal or a new trial.-21-IV. CONCLUSION The defendant’s appeal is based on claims that do not amount to a substantial question of law or fact likely to result in a reversal of his conviction or a new trial. Accordingly, the defendant’s motion for bail pending appeal should be denied. Respectfully submitted, DEIRDRE M. DALY UNITED STATES ATTORNEY/s/HEATHER L. CHERRY JONATHAN N. FRANCIS WILLIAM J. NARDINI ASSISTANT UNITED STATES ATTORNEYS 157 Church Street, 25th Floor New Haven, CT 06510 Tel.: (203) 821-3700-22-STATE OF CONNECTICUT ss: New Haven, Connecticut COUNTY OF NEW HAVEN AFFIDAVIT I, Heather L. Cherry, state as follows: 1. I am an Assistant United States Attorney for the District of Connecticut. I represent the United States in the captioned appeal and I am admitted to practice before this Court. 2. I make this affidavit in support of the attached Government’s Opposition to Defendant’s Motion For Release Pending Appeal. 3. The facts set forth in the Government’s Opposition are true and correct to the best of my knowledge and belief. 4. The Government’s Opposition complies with the 5,200 word limitation of Federal Rule of Appellate Procedure 27(d). 5. Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on July 17, 2017. AFFIANT/s/HEATHER L. CHERRY ASSISTANT U.S. ATTORNEY-23-CERTIFICATE OF SERVICE I hereby certify that on July 17, 2017, a copy of the foregoing was filed electronically. Notice of this filing will be sent by e-mail to all parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s CM/ECF System./s/HEATHER L. CHERRY ASSISTANT UNITED STATES ATTORNEY-24-GOVERNMENT ADDENDUM TABLE OF CONTENTS Trial Transcript (Canter), January 5-6, 2017 (excerpts)...................................... GA1 Trial Transcript (Corso), January 9, 2017 (excerpts)........................................ GA73 Trial Transcript (Lemin), January 9-10, 2017 (excerpts).................................. GA86 Trial Transcript (Wollman), January 10, 2017 (excerpts)............................... GA102 Trial Transcript (Burnaman), January 12, 2017 (excerpts)............................. GA121 Trial Transcript (SA O’Connor), January 11, 2017 (excerpts)........................ GA133 Ruling Re: Motion for Judgment of Acquittal, April 17, 2017....................... GA138 Trial Transcript (Norris), February 21, 2014 (excerpts).................................. GA166 1 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 5, 2017 4 Government)9:15 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY ONE OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 16 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 GA1 119 1 MS. TREFZ: No further questions, Your Honor. 2 THE COURT: Any redirect, Attorney Nardini? 3 MR. NARDINI: One quick question. 4 REDIRECT EXAMINATION 5 BY MR. NARDINI: 6 Q. Mr. Mossman, there's a question about being in 7 multiple chat rooms at the same time. Do you recall that? 8 If someone wasn't in a chat room with a particular person, 9 would they have the right to access the other person's chat 10 rooms and find out what they were chatting about in those 11 other chat rooms? 12 A. No. 13 MR. NARDINI: No further questions. 14 THE COURT: You may step down. You are excused. 15 MR. FRANCIS: The Government calls Michael Canter to 16 the stand. 17 THE COURT: Mr. Canter, if you can come up to the 18 witness stand, and when you arrive I ask that you remain 19 standing so the clerk may administer an oath to you. 20 MICHAEL CANTER, 21 Having been called as a witness, was first duly sworn and 22 testified on his/her oath as follows: 23 THE WITNESS: Yes. 24 THE CLERK: State your name and spell your last 25 name, and give us your city and state of employment. GA2 177 1 with Jefferies? 2 A. Our relationship has never recovered from the 3 incident we're here to talk about today. And, you know, the 4 trust was never rebuilt, so we still don't have a kind of key 5 element of trust. 6 Q. Before you had this phone call with Mr. Litvak and 7 Ms. Starr, did you trust Mr. Litvak? 8 A. Yes. 9 Q. How about after the phone call? 10 A. No. 11 MR. FRANCIS: Your Honor, I would like to move on to 12 introduce Government's Exhibit 411B. 13 THE COURT: Any objection to Exhibit 411B? 14 MR. BUTSWINKAS: Can it be put up for identification 15 first, please? 16 THE COURT: Sure. I don't know if it's multi-page 17 or not. 18 MR. BUTSWINKAS: No objection, Your Honor. 19 THE COURT: All right. Then 411B is a full exhibit 20 and can be published. 21 BY MR. FRANCIS: 22 Q. We're talking about some BWIC trades that we saw in 23 Government's Exhibit 1. I want to talk about a different 24 BWIC trade. I'm putting up this particular one. I'll scroll 25 down. Do you recognize this to be a transcript of a chat GA3 178 1 AllianceBernstein had with Jefferies? 2 A. Yes. 3 Q. And it starts on September 13, 2010 and spills over 4 onto the 14th. Do you see that? 5 A. Okay. 6 Q. I'm skipping to the fourth page of the document. Do 7 you see at time stamp 16:35:48, you write HVMLT 07-7 coming 8 up. What about that one? 9 A. Yes. 10 Q. From this context, can you tell us which kind of--11 of the three kinds of trades we talked about, which kind of 12 trade this is? 13 A. It looks like it is a BWIC. 14 Q. Mr. Litvak responds, and at 17:15 and 12 second, you 15 say let's bid 66 and 20. Do you see that? 16 A. Yes. 17 Q. What does Mr. Litvak say in response? 18 A. Sounds good, Mikey. 19 Q. What did you understand Mr. Litvak was doing from 20 reading this? What do you understand Mr. Litvak was doing 21 with your 66-20 bid? 22 A. That he was going to use that bid, meaning that he 23 was going to take our bid and communicate it to the seller. 24 Q. Was he obligated to do that? 25 A. No. GA4 179 1 MR. BUTSWINKAS: Objection. Foundation. 2 MR. FRANCIS: I can ask a different question. I'm 3 not sure I understand the objection. 4 THE COURT: Rephrase. 5 BY MR. FRANCIS: 6 Q. Have you given bids to broker dealers in BWICs where 7 they don't take your bid and they say no? 8 A. Right. So if a broker dealer feels like our bid is 9 too low and that they themselves would have a higher bid, 10 basically to buy a bond for their own inventory, then they 11 may say to us, no, your bid is too low, we're not going to 12 use that because our bid for our own inventory would be 13 higher. So they say no all the time. 14 Q. In this case, he writes sounds good, Mikey. And at 15 18:05:42, so about 15 minutes--49 minutes later, you write 16 any word, question mark. What does Mr. Litvak respond? 17 A. He says, calling now. Told him to not let him get 18 away. They said they would give us all the color info. 19 Q. Calling who now? Who do you understand he's 20 referring to? 21 A. The seller. 22 Q. Told him not to get away. They said they would give 23 us all the color slash info. In your industry, what does 24 "color" mean? 25 A. As the BWIC auction is going on, the person who owns GA5 180 1 the bonds, who is trying to sell it, will give what we call 2 color to the broker dealers letting them know how their bids 3 are fairing. If they are close to winning, maybe if they are 4 winning, if they are not close at all, that sort of thing. 5 Q. Then he writes in the next second, be right back, 6 BRB. And then later down here at 18:31:32, what does 7 Mr. Litvak write to you? 8 A. He says we bought them at 61-01--66-01, was our 9 cover. I'm sorry. We bought them, meaning Jefferies, 66-01 10 was our cover. 11 Q. Let me stop you. Explain to us what cover is. 12 A. Second place in the auction. 13 Q. It is in quotes, and he goes to write but that guy 14 was calling every 10 minutes to get color slash offer, so 15 they think he would have paid our level? 16 A. Right. 17 Q. What do you say to Mr. Litvak? 18 A. Cool, add 4 ticks. 19 Q. Is that your standard 4 tick amount on top for BWICs 20 that we talked about? 21 A. Yep. 22 Q. What price did you understand that Mr. Litvak was 23 conveying to the seller in the auction? 24 A. 66-20. 25 Q. And what did you understand was the result of you GA6 181 1 bidding 66-20? 2 A. That we won. 3 Q. So what did you understand the price Jefferies was 4 going to pay to the seller? 5 A. 66-20. 6 Q. At the time, if you had known that Jefferies had 7 bought the bond at 66-17 and not 66-20, would that have 8 mattered to you? 9 A. Yes. 10 MR. BUTSWINKAS: Same objection as before, Your 11 Honor. 12 THE COURT: Overruled. 13 BY MR. FRANCIS: 14 Q. I'm sorry. Mr. Canter, would that have mattered to 15 you? 16 A. Yes. 17 Q. Can you explain why? 18 A. So we told him to bid 66-20, so we would have been 19 upset if he had done something differently. And by bidding 20 lower, he was jeopardizing us not winning the bond. And if 21 he thought that we could have won the bond at a lower price, 22 you know, and we could have done that, then a lower price 23 would have been better for my investors, and so, yeah, it 24 matters. 25 Q. What did you agree that--what did you and Mr. GA7 182 1 Litvak agree that Jefferies was going to make on that trade? 2 A. 4 ticks. 3 Q. So if we do the math. If you had known at the time 4 that it was really 7 ticks that Jefferies was making on the 5 trade and not 4, would that have been important for you to 6 know? 7 A. Yes. 8 Q. Why? 9 A. It is not what we agreed to. 10 Q. If I told you that on this particular trade that 11 3-tick difference is worth $3,120 and some cents, does that 12 change your answer? 13 A. No. 14 Q. Why not? 15 A. It matters. These ticks matter. Sometimes we don't 16 do trades over 1 tick, 2 ticks, a plus, right. So it just--17 it matters. 18 Q. When you say a plus, that's a half tick? 19 A. Yeah. 20 MR. FRANCIS: Your Honor, I would like to introduce 21 Government's Exhibit 35B. 22 THE COURT: Any objection to Exhibit 35B? 23 MR. BUTSWINKAS: Your Honor, may it be posted? 24 THE COURT: Can you post that? We have it blocked. 25 Can you bring it up on the screen? GA8 183 1 MR. BUTSWINKAS: Yes. No objection, Your Honor. 2 THE COURT: 35B is a full exhibit. May be 3 published. Thank you. 4 BY MR. FRANCIS: 5 Q. I want to move to a different kind of trade. I want 6 to talk about the order trade that you were talking about, 7 the matching up. Okay. 8 A. Okay. 9 Q. This is another Bloomberg chat, for example. I will 10 zoom in on part of it. It is between the lines, 11 AllianceBernstein and Jefferies? 12 A. Yes. 13 Q. And this one is from--it starts on the June 21, 14 2011 and spills over into the 22nd? 15 A. I see. 16 Q. The fifth page of this document. I will blow up a 17 part of it. This is you entering the chat room, right? 18 A. I think so. 19 Q. Do you see that top line? 20 A. Yup. 21 Q. Michael Canter entered? 22 A. Yup. 23 Q. The bottom line of the portion that I have blown up, 24 it is the time stamp 11:50 and 8 seconds. Says Michael 25 Canter viewed history over the prior few hours. Do you see GA9 184 1 that? 2 A. I do. 3 Q. Going to the sixth page, the next page of the 4 document. Do you see Mr. Litvak bringing your attention or 5 bringing AllianceBernstein's attention to a bid list? 6 A. Yes. 7 Q. And how can you tell it is a bid list from the 8 portion I have blown up here? 9 A. Because he's indicating a time of 1 p.m. That's the 10 bid list. When they announce them, they announce the bonds, 11 the amounts and a date and time. 12 Q. Is there one particular bond here that Mr. Litvak is 13 particularly excited about? 14 A. I think it is the HVMLT bond. 15 Q. And he abbreviates that 07-7? 16 A. Yes. 17 Q. Do you have an understanding of why Mr. Litvak 18 would be drawing AllianceBernstein's attention to that bond 19 over others? 20 A. I think that we had bought that bond from him 21 before. 22 Q. Skipping two pages, now on the eighth page of the 23 document, Your Honor. 24 Mr. Litvak is asking people at AllianceBernstein a 25 question here at 16:43:53? GA10 185 1 A. I'm sorry? 2 Q. Do you see that Mr. Litvak is asking a question at 3 that 16:43:53 time? 4 A. Yes. 5 Q. What he writes literally is, you guys gonna dance on 6 the Humvees. What do you understand that to mean? 7 A. That we are going to have interest in bidding on the 8 HVMLT bond. 9 Q. Is Humvee is sort of a nickname for the HVMLT bond? 10 A. I think so. 11 Q. Mr. Schick responds and asks a question of his own. 12 What does he ask? 13 A. Will you take 65-05 on the Harborview, which is 14 another name for HVMLT bond. 15 Q. If you read on, does Mr. Litvak agree to use that 16 bid in the BWIC? 17 A. No, he doesn't. 18 Q. What does Mr. Schick write at 17:03:51 after 19 Mr. Litvak says he's not going to use that 65-05 bid? 20 A. He says let me know if you buy. 21 Q. Mr. Litvak responds okay. If I go to the next page, 22 Your Honor, on the ninth page of the document, Your Honor. 23 Do you see Mr. Litvak reports that he purchased a 24 HVMLT bond? 25 A. Yes. GA11 186 1 Q. What price does Mr. Litvak say he paid for that 2 bond? 3 A. He said he bought them at 67-21. 4 Q. And then gives some information about the cover? 5 A. Yes. 6 Q. And Mr. Litvak offers to let AllianceBernstein buy 7 the bond, that HVMLT bond, if it wants it; is that right? 8 A. Yes. 9 Q. Mr. Schick writes, give us a minute, we'll be right 10 back. And some time goes by, and then at this line at 18:58 11 and 35 seconds, Mr. Schick asks a question. What is that? 12 A. He says, can we buy them plus 4. 13 Q. What do you understand that to mean? 14 A. Can we buy them from Jefferies 4 ticks higher than 15 they had just purchased them? 16 Q. What does Mr. Litvak say? 17 A. He says sure, 67-25 works for me. 18 Q. That's the deal. A done deal? 19 A. Yes. 20 Q. How much compensation did Mr. Litvak agree that 21 AllianceBernstein would pay Jefferies on this trade? 22 A. 4 ticks. 23 Q. And what price did Mr. Litvak say that Jefferies had 24 paid in the BWIC? 25 A. 67-21. GA12 187 1 Q. At the time, if you had known that Mr. Litvak and 2 Jefferies had paid 67-15, 6 ticks cheaper, not 67-21, would 3 that have been important for AllianceBernstein to know? 4 MR. BUTSWINKAS: Objection. Ultimate issue, 403. 5 THE COURT: Overruled. 6 THE WITNESS: Yes. 7 BY MR. FRANCIS: 8 Q. Can you explain why? 9 A. Because our offer was to pay 4 ticks higher than 10 what he had bought them out. So even though we did not 11 participate in the bid list, we were basically if we could 12 assume the same relationship on this trade, which would be we 13 would buy them 4 ticks higher than he had purchased them. If 14 he had purchased them at 67-15, we would have bought them at 15 67-19. 16 Q. So if--would it have been important to know that 17 Mr. Litvak wasn't--and Jefferies weren't making 4 ticks, 18 but were making 10 ticks on this trade from 19 AllianceBernstein? 20 A. Yes. 21 Q. 10 ticks and 4 ticks, what does did it make, 22 Mr. Canter? 23 A. It is all money, and it's not my money. So if we 24 could have gotten it cheaper, that would have been better for 25 my investors. And we do this on individual trades because we GA13 188 1 try to be vigilant on each individual trade because we have 2 $4 billion of money to put to work and these ticks, they 3 matter in the individual transactions because they add up to 4 a lot. I hear you say that $4 billion and here are the 6 5 ticks are only worth $17,104. How can that be important to 6 AllianceBernstein 7 MR. BUTSWINKAS: Objection. He just explained. 8 Asked and answered. 9 THE COURT: I will allow it. Overruled. 10 THE WITNESS: It is important in that when we're 11 buying something, we're buying it--we're buying it at the 12 price that we thought sure, but we're also using the 13 information that we have about what the transaction that just 14 occurred into calculating the final price that we're buying 15 it from Jefferies, and so if the starting point for that is 16 wrong, then I haven't done the best job for my investors at 17 that point. 18 BY MR. FRANCIS: 19 Q. So if--are you familiar with the term with respect 20 to RMBS bonds, yield? 21 A. Yes. 22 Q. What's the relationship between yield and price? 23 A. So the lower the bond price, the higher the yield on 24 a particular bond. If you buy a bond at par at 100 and it 25 has a 5 percent yield, meaning you are going to get GA14 189 1 5 percent, going to get $5 each year. If instead you bought 2 that same bond at 95 cents instead of at 100, your yield is 3 higher. You are getting the same $5 of interest every year, 4 but you only had to pay 95 for it, right, so five divided by 5 95 is higher than divided by 100. 6 Q. Is yield just another way of saying profitability? 7 A. Yes. 8 Q. If AllianceBernstein had been able to buy the HVMLT 9 bond at a cheaper price, what effect would that have on the 10 profitability on that investment for AllianceBernstein's 11 investors? 12 A. It increases the yield. The dollars turn into 13 yields that are just percent and percents that are yield turn 14 into dollars so the lower we pay the price we pay for the 15 bonds, the more money we can make for our investors. 16 Q. Your Honor, I would like to introduce Government's 17 Exhibit 11. 18 THE COURT: Do you need that posted, sir? 19 MR. BUTSWINKAS: Yes, please, Your Honor. 20 THE COURT: You can post it. 21 MR. BUTSWINKAS: No objection. 22 THE COURT: Government's Exhibit 11 is a full 23 exhibit. 24 BY MR. FRANCIS: 25 Q. Did I blow that up enough? Can people read this? GA15 199 1 A. No. 2 Q. And did you understand that Mr. Litvak's line was 3 recorded back then? 4 A. I don't know. 5 Q. So Mr. Litvak comes back and writes he's off the 6 desk, should have them soon, thinks he went to lunch. You 7 say k, that you are stepping out. A 16:45:45 we pick up in 8 substance again. I'm going to break this down. This is a 9 large block that I highlighted. Mr. Litvak writes okay, big 10 man. Who is the big man? 11 A. He's referring to me. 12 Q. Here's what I got from him. Who do you understand 13 the "him" is in that sentence? 14 A. The seller. 15 Q. Mr. Litvak writes I beat him up pretty good, but 16 this is what he came back with colon. He will sell to me 17 20mm, 20 million, is that what 20mm? 18 A. Yes, 20 million. 19 Q. 20 million original face of HVMLT 0610 at 58-00. 20 He's being harder to knock back to the LXS bond he says that 21 he thinks that one is much cheaper yada, yada, yada. He told 22 me he would sell them to me 58-08 (30 million original). I 23 would be fine working skinnier on these two. Let me pause. 24 What does it mean for Mr. Litvak to be working skinnier on 25 these two bonds? GA16 200 1 A. I think he means that he's going to take less than 2 usual on these trades. 3 Q. So AllianceBernstein won't have to pay Jefferies as 4 much? 5 A. Correct. 6 Q. To pick up again, he writes, he continues, but think 7 you are getting good levels on these. Let me know what you 8 want to do, big man. So what are the two bonds we're talking 9 answer here? 10 A. The HVMLT and the LXS bond. 11 Q. LXS does the L stand for Lehman? 12 A. Yeah, I believe it does. 13 Q. In HVMLT does the HV stand for the Harborview? 14 A. Yes. 15 Q. You have a question in response to all of that. 16 What's your question? 17 A. Is he paying you or am I? 18 Q. What are you asking Mr. Litvak? 19 A. I'm asking if the seller is going to pay Jefferies 20 or is AllianceBernstein. 21 Q. And if AllianceBernstein is going to pay, then what 22 does that do to the 58 price for the Harborview bond and the 23 58-08 for the Lehman bond? What's going to happen? 24 A. We're going to need to pay them higher, slightly 25 higher prices. GA17 201 1 Q. Okay. But you have a question which is is the 2 seller going to pay. Is that something that happens that the 3 seller pays? 4 A. Yes. 5 Q. How would that work? What would happen to these two 6 prices of 58 and 58-08? 7 A. The seller could instead of selling it to him at 58, 8 they could sell it to him at 57-28 so that Jefferies winds up 9 buying it cheaper, then they could turn around and sell it to 10 AllianceBernstein at 58 so they make 4 ticks where the seller 11 lowers its price instead of us, the buyer, raising ours. 12 Q. Why are you asking this question? What do you 13 understand to be the state of play about the pricing? 14 A. That the 58 is the offer price to Jefferies on the 15 HVMLT bond that Jefferies can buy it at. 16 Q. On the Lehman bond? 17 A. 58-08. 18 Q. Mr. Litvak has an answer to your question which is 19 all the levels I put in this room are levels he wants to sell 20 to me so who is "he"? 21 A. The seller. 22 Q. And does Mr. Litvak describe his negotiations with 23 the seller? 24 A. Right, yes. 25 Q. What does it mean--what do you understand him to GA18 202 1 mean when he says I tried to beat him up so I can get these 2 levels to you? 3 A. I think he's trying to convey that he thinks he 4 negotiated hard to get those levels to get those prices. 5 Q. Then he picks up again, but those are the levels he 6 wants to sell to me. Then Mr. Litvak writes, I would work 7 for whatever you want on these. What do you understand Mr. 8 Litvak being offering to do? 9 A. Saying that he'll--whatever we want to pay him on 10 top of what he purchased them at, he would be fine with. 11 Q. He talks about increasing the amount of the LXS bond 12 the face value or the total amount of THE LXS from 30 to 40. 13 That's the next line? 14 A. Yes. 15 Q. And he says totally up to you if you want the extra 16 10 assuming we agree on price. What's the relationship 17 between size of a bond and the price of the bond? 18 A. There isn't. Unless you are talking actual dollars 19 then there is. These prices dollars don't matter. At these 20 the extra 10 million affects the actual dollar amount you 21 wind up paying, but doesn't effect the price the 58-08 22 whatever. 23 Q. Let me make sure I got this. It affects the amount 24 of money the total size of the check that AllianceBernstein 25 has to write for the bonds, but it is not changing the 58-08 GA19 203 1 price here? 2 MR. BUTSWINKAS: Objection. Leading. 3 THE COURT: Sounds like a bit like it. Sustained. 4 BY MR. FRANCIS: 5 Q. I want to make sure I got this right. I'm worried 6 that we're on a different page. When you say it doesn't 7 affect the total dollar price, can you explain what you mean? 8 A. Meaning if we pay 58 cents on the dollar, when we 9 say cents on the dollar, we're talking about really versus 10 the current face amount. The current face amount is one 11 million or 100 million the 58-08 doesn't change. 12 Q. What does change if it goes from 30 to 40 million? 13 A. When you multiply the dollar price as a percentage 14 times the current face amount, the resulting dollars 15 changes. 16 Q. Okay. And Mr. Litvak writes here if you don't want 17 them, I would gladly take them. Damn I just typed a lot. 18 If AllianceBernstein doesn't buy the bonds, what is 19 Mr. Litvak saying is going to happen to them? 20 A. Jefferies is going to buy them. 21 Q. You say you are going to lunch and Mr. Litvak 22 writes again at 17:24:47. Recap the levels he's offering to 23 me, and then who is "he"? 24 A. The seller. 25 Q. What are the levels that the seller is offering to GA20 204 1 Mr. Litvak? 2 A. 58 for the HVMLT bond and 58 and a quarter for the 3 the LXS bond. 4 Q. 17:45:54, what does Mr. Litvak say? 5 A. Bought them. 6 Q. What do you understand Mr. Litvak to have bought? 7 A. Those two bonds. 8 Q. What price? 9 A. The prices that he's written right above it. 58 and 10 58 and a quarter. 11 Q. Going to third page of the document, your Honor. 12 You have a question for Mr. Litvak. What's that? 13 A. Can you wash the HVMLT and I think I have a typo 14 there and add 5 ticks to the LXS. 15 Q. You correct the typo in the next line. 16 A. I see. 17 Q. What does it mean to wash the HVMLT? 18 A. Add no ticks so basically make no money on that 19 bond. 20 Q. And add 5 ticks to the LXS. That's how that line 21 ended. How is that worth Mr. Litvak's time to take no 22 compensation, add no ticks on the HVMLT? 23 A. Well, that LXS bond was bigger so I don't know 24 exactly how the math works out, what we were trying to do was 25 compensate him a little bit more on the LXS bond so that it GA21 205 1 would have been similar as we had just paid them 4 ticks on 2 each bond 3 Q. So your understanding is that it is netting out to 4 be the same? 5 A. Right. So we had a particular price, you know, cap 6 we were willing to pay for the HVMLT bond and where we had a 7 little extra room on the LXS bond so we preferred to add to 8 the cost of that bond. 9 Q. And Mr. Litvak says that's fine. Then at 18:50:15, 10 you ask a question, why are you asking if there's any reason 11 that you need to keep it quiet? 12 A. Well, because Jesse had said he was showing us these 13 bonds exclusively. It wasn't widely known in the market like 14 a bid list would be. If there was some reason that he didn't 15 want other firms to know about it, then, you know, we would 16 honor that because he had selected us as somebody he wanted 17 to trade with and so we didn't want to violate his trust. 18 Q. Is there anything wrong with that, keeping it a 19 secret that you bought a bond? 20 A. No. 21 Q. And what does Mr. Litvak ask you to do? 22 A. He says just keep the LXS bond on the DL, that was a 23 cheap bond. 24 Q. What does it mean keep on DL? 25 A. I think he means don't talk about it. GA22 206 1 Q. DL stands for down low, slang? 2 A. Yes. 3 Q. Don't want people knowing we bought that one that 4 cheap. So what price did Mr. Litvak tell you that he was 5 paying for the HVMLT bond? 6 A. Can you go back up? 7 Q. Sure. You tell me where you want me to go to. 8 Welooked at a lot. Is this helpful? 9 A. Yes, 58. 10 Q. Would it have mattered to you if you had known at 11 the time back on March 31, 2010 that Mr. Litvak and Jefferies 12 were actually buying the bond at 57 and a half or 57-16 13 ticks? 14 MR. BUTSWINKAS: Your Honor, ultimate issue and 403 15 objection. 16 THE COURT: Overruled. As I say, I will put my 17 reasons on the record after the jury leaves. 18 MR. BUTSWINKAS: Thank you, Your Honor. 19 THE WITNESS: Yes, it would have mattered. 20 BY MR. FRANCIS: 21 Q. Can you explain why? 22 A. Well, because we based the price that we were 23 ultimately going to pay Jefferies partially on information 24 that Jesse gave us. 25 Q. And how much compensation did and you Mr. Litvak GA23 207 1 agree that Jefferies would make on the HVMLT bond trade? 2 A. Zero. 3 Q. If you had known that Mr. Litvak was actually making 4 16 ticks for Jefferies and not zero, would that have been 5 something that would have mattered to you at the time? 6 A. Yes. 7 Q. Why is that? 8 A. For the same reason. If we could have bought it 9 lower and been given accurate information, we would have--10 we could have negotiated a better price perhaps. 11 Q. Let's talk about the other bond, the Lehman bond, 12 the LXS bond. 13 THE COURT: I think we'll hold that for tomorrow. 14 MR. FRANCIS: I can finish it in two minutes. 15 BY MR. FRANCIS: 16 Q. What price did Mr. Litvak tell you he was buying the 17 Leman bond at? 18 A. 58 and a quarter. 19 Q. 58-08 ticks same thing? 20 A. Yes. 21 Q. Would it have mattered to you if you had known at 22 the time that Jefferies wasn't buying it at 58 and a quarter 23 but was really buying the bond at 56 and a half? 24 A. Yes. 25 MR. BUTSWINKAS: Objection. Same reason, Your GA24 208 1 Honor. 2 THE COURT: Overruled for the same reason I will 3 articulate. 4 THE WITNESS: Yes, it would have mattered. 5 BY MR. FRANCIS: 6 Q. Why is that? 7 A. For the same reason. If we had had accurate 8 information from Jesse, we could have negotiated a lower 9 price perhaps. 10 Q. If you had known that instead of--how many ticks 11 did you think Jefferies was making on the Lehman bond trade? 12 A. Five. 13 Q. If you had known instead of making the 5 ticks they 14 were really making 61 ticks, would that have been important 15 information for you to have at the time? 16 A. Yes, absolutely. 17 Q. And if I tell you that the 61 ticks, the difference 18 between 5 ticks and the 61 is worth $602,000, does that 19 change your answer? 20 A. No. Obviously, the more money at stake the more 21 important it is, but like I said before, it all matters. 22 Q. Thank you, Mr. Canter. I think this is the good 23 stopping point. 24 THE COURT: Ladies and gentlemen, it's a quarter to 25 4:00. We'll recess for the day. Before you go, I'm happy to GA25 216 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 6, 2017 4 Government)9:07 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY TWO OF TRIAL 10 (WITH SEALED PORTION) 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 GA26 267 1 MICHAEL CANTER 2 Having been previously duly sworn, 3 was examined further upon his oath as follows: 4 DIRECT EXAMINATION-CONTINUED 5 BY MR. FRANCIS: 6 Q. Good morning. Mr. Canter, I would like to go back 7 to a document we were looking at yesterday. This is Exhibit 8 13D. It's already in evidence, Your Honor. 9 Do you recall this document? 10 A. Yes. 11 Q. Okay. So on the bottom of the second page of the 12 document, Your Honor, and the time stamp I want to focus on 13 here is 17:24:47 where Mr. Litvak writes, so to recap the 14 levels he's offering to me. And I want to focus in on the 15 LXS bond. 16 So are you with me, Mr. Canter? 17 A. Yes. 18 Q. Thank you. So you end up--this is the second of 19 the two trades. This is the one you end up paying 5 ticks to 20 Jefferies on. Are you with me? 21 A. Yes. 22 Q. This is an order trade, right? 23 A. Yes. 24 Q. Typically, in order trades, do you know how much a 25 broker dealer is making? GA27 268 1 A. It could be either or. 2 Q. Okay. Can you please explain that answer for the 3 jury? 4 A. So the broker dealer could offer us the bonds and 5 not tell us where they purchased it from the customer. Other 6 times, like in this case, they told us where they are 7 purchasing it from the customer, or we thought they were 8 telling us that. 9 Q. Where a broker dealer doesn't give you that 10 information about the price that they are paying, how does 11 that factor into your decision-making about the price to pay 12 for a bond? 13 A. If they don't tell us what price they bought it at, 14 they are just telling us the offer price to us instead of to 15 them, the broker dealer, so we're then--at that point we're 16 just negotiating as best we can based on other information we 17 have. 18 Q. What other information is that? Explain that. 19 A. Well, we have the output of our models which gives 20 us sort of underpinnings of a starting point. Then we have 21 other bonds that we purchased recently which may resemble the 22 bond we're trying to negotiate. We have other bid lists that 23 we have participated on, where we either won or lost, so we 24 have information from that. We have other information from 25 talking to other dealers, et cetera. GA28 269 1 Q. These things you are talking about, this is all part 2 of the analysis that you were describing yesterday? 3 A. So I would make a distinction between our analysis, 4 our fundamental analysis, our quantitative analysis, and then 5 trying to negotiate the best price. So we could--we could 6 have thought that this bond was a good deal at 70. We still 7 would have tried to negotiate the best price just because 8 our models say that it is a good deal up to a certain price. 9 We then have to go back and say, well, what's the going 10 market price for these things and let's try to get the best 11 price we can. 12 Q. Why do you have that interest in getting the best 13 price you can? 14 A. Because then we get the best return for our 15 versus. 16 Q. So in a situation like this one that I put in front 17 of the screen where a broker dealer has told you the price 18 that they are paying to buy a bond in an order trade, how 19 does that factor into your decision-making about what price 20 to pay? 21 A. I kind of view it as it is the latest datapoint. So 22 you know, everything else that we know and all the other 23 things that I mentioned that just went in that we're trying 24 to create comparable things to try to understand where the 25 market price should be, that's the latest datapoint. That's GA29 270 1 hot-off-the-press information that's most useful. 2 Q. And in this case, what did--how did the 3 information--that Jefferies was buying at 58-08, what 4 effect did that have on the total price that 5 AllianceBernstein paid? 6 A. We based the price that we were going to pay 7 partially on that--what we thought was fact, and then we 8 added 5 ticks to that. 9 Q. So I asked you a question yesterday about paying 61 10 ticks on this trade. Have you ever paid--I mean, to your 11 knowledge, have you ever paid 61 ticks on an order trade? 12 A. No, not to my knowledge. 13 Q. Maybe I should ask. Do you ever willingly pay, to 14 your knowledge, 61 ticks on a order trade? 15 A. No. Certainly not in a situation where they told me 16 what price they bought it at. 17 Q. Why is that? Why have you never willingly paid 61 18 ticks? 19 A. Because that price differential is a lot compared to 20 sort of what broker dealers normally would get paid for 21 transacting this type of order, in my opinion. And so yeah, 22 we jut don't pay that much. We think bid list broker dealers 23 we have been paying 4 ticks on order trades. It could be 24 zero, could be 4 ticks, could be 8 ticks, but we have never 25 really paid much more than that. GA30 271 1 Q. I would like to move on to a different trade. Your 2 Honor, if I can get the screen taken down. I want to show 3 Exhibit 404 for identification. 4 MR. FRANCIS: If there's no objection from defense, 5 I would like to offer it into evidence. 6 THE COURT: Any objection to 404? 7 MR. BUTSWINKAS: No, Your Honor. 8 THE COURT: It can be displayed. 9 BY MR. FRANCIS: 10 Q. Mr. Canter, so the first thing I want to look at in 11 this document is the date. I apologize. So what's the date 12 on the document? 13 A. April 1. 14 Q. How about the trades we were talking about the end 15 of yesterday and just now, do you recall the date on those 16 trades? 17 A. I think those were the 31st. 18 Q. This is the next day? 19 A. Yes. 20 Q. So at 12:32:51, the time stamp, do you see that 21 Mr. Litvak raises the possibility about you buying a bond? 22 A. Yes. 23 Q. What bond is that? 24 A. The RALI bond. 25 Q. That's this R-A-L-I 072H 1A1 that I just GA31 272 1 highlighted? 2 A. Yes. 3 Q. And if I scroll down, do you see at--do you 4 raise--do you ask Mr. Litvak to compare this to the bonds 5 that you had purchased on the prior day? 6 A. Yes. 7 Q. And what does Mr. Litvak say about the LXS bond, in 8 particular? 9 A. He said I think the LXS bond was a great buy. 10 Q. If I scroll down, Mr. Litvak--do you see where he 11 raises the possibility of partnering up with you? 12 A. Yes. 13 Q. So what he writes at 12:51:26 time stamp, and it 14 goes without saying that I like this trade at this level 15 enough to partner up with you on the 50 million. Can you 16 explain for the jury in the context it appears here, what 17 does it mean for Mr. Litvak and AllianceBernstein or 18 Jefferies and AllianceBernstein to partner up on a trade? 19 A. Well, it could mean--it could mean that he just 20 wants us to work with him on the trade. It could mean that 21 he would look to buy 25 million and Alliance would buy 25 22 million. I'm not quite sure. 23 Q. When you say 25 million, that's with reference to 24 the 50 million he's showing you, so it would be each of you 25 buying half? GA32 273 1 A. Right, something like that. 2 Q. 14:00:25 time stamp, you asked Mr. Litvak a 3 question? 4 A. Yes. 5 Q. What is that question? 6 A. Is 57 the best we can do? 7 Q. Why are you asking--what is your understanding of 8 what you are asking Mr. Litvak there? 9 A. I'm sorry. Refresh my memory. Is this a bid list 10 trade or is this an order trade? 11 Q. Would it help if I go back to the first page? 12 A. Yes. 13 Q. Let me. 14 A. Okay. 15 Q. So you tell me and everyone else, what kind of trade 16 is this? 17 A. It seems like it is an order trade. 18 MR. BUTSWINKAS: Your Honor, I just wanted clarity 19 whether we're talking about the RALI bond or the LXS bond 20 because there are--21 THE COURT: The question when he asks what kind of 22 trade is this, could you be specific? 23 MR. FRANCIS: Absolutely. 24 BY MR. FRANCIS: 25 Q. This April 1 trade that we're talking now on the GA33 274 1 RALI bond, what do you understand from reviewing this 2 document what kind of trade is Mr. Litvak proposing to you? 3 A. It seems like it is an order trade. 4 Q. So if I go back to--this is the top of the second 5 page, and I was asking you about this line, is 57 the best we 6 can do, what do you understand--you are asking Mr. Litvak? 7 A. So I'm not sure whether we wound up partnering or 8 not, but the 57, it seems like we must have bid 57 and I'm 9 asking--or we're about to bid and I'm asking is this what 10 he thinks is as cheap as we can get to buy the bond from the 11 customer who is selling. 12 Q. And the next line, Mr. Litvak has an answer for you. 13 He writes, I will find out, gonna call him now. Who do you 14 understand "him" to be? 15 A. The seller. 16 Q. He continues--Mr. Litvak continues, we traded the 17 other piece there (buyer paid me 57-8). Do you understand 18 that to be a reference to his prior comments about trading 19 another part of the same RALI bond? 20 A. Yes. 21 Q. And that--let's just take a second here. We 22 talked about bonds and their face value and CUSIPs. If I 23 have $50 million of a RALI bond and I sell you 25 and I keep 24 25, do the CUSIPs change? 25 A. No. GA34 275 1 Q. So you can take one bond and break it up however you 2 want by face value then? 3 A. That's right. 4 Q. To continue where I was reading from at 14:02:40 5 time stamp. If I tell him that I will take the 50 million, I 6 think he will sell them to me a little bit cheap to 57. 7 Let's just stop there. From your--in your industry, why 8 would the taking 50 million result in the price being a 9 little cheap to 57? 10 A. Sometimes when you are buying a very large size of 11 bonds, the seller will give you a lesser price, a better 12 price for you, the buyer. Other times it works the other 13 way, but that's what he was saying here. 14 Q. So there can be a relationship between size and 15 price and but it can work--you just never know? It depends 16 on the trade? 17 A. That's right. 18 Q. So go back to the document. Mr. Litvak continued 19 writing after I think he was selling them a little bit cheap 20 to 57, but it will be like 8/32 or something. Let me call 21 him and feel him out. So from this, what do I understand 22 Mr. Litvak is telling you about what he expects the seller to 23 have to say? 24 A. I think what he's saying there is that from the 57-8 25 that the seller transacted at yesterday with Jesse that due GA35 276 1 to the large size, the most Jesse could see--not the most, 2 but he anticipates that he'll get 8/32 discount off of that 3 price, around 57 or thereabouts. 4 Q. You write I'm only interested in half, and at 5 14:04:09, Mr. Litvak writes, okay, I will take the other half 6 because I like it, too. If that helps get this a little 7 cheaper, win win for all. So what's the kind of state of 8 play between you and Mr. Litvak? What's the plan with regard 9 to the seller? 10 A. That we're each going to take half and Jessie is 11 going to try to buy them at around 57. 12 Q. Then you have an instruction to Mr. Litvak, what do 13 you say to him at 14:06:07? 14 A. Okay. Bid them best you can. 15 Q. So what does that mean, bid them best you can? 16 A. Well, because we're partnering, we're--my 17 expectation was we're sharing in the same purchase price 18 other than the on-top ticks that we would pay Jesse. And so 19 when I say bid them best you can, my view there is that our 20 interests are aligned in getting them at a low price because 21 we're sharing the purchase. 22 Q. I'm sorry. Getting a what price? I don't know if 23 it is the microphone or my ear. You said getting a blank 24 price. I just missed what the--did you say low or--25 A. I--I don't remember. GA36 277 1 Q. Let me ask a different question. What kind of price 2 do you want to get? What kind of interest--what kind of 3 price are you aligned in interest with Mr. Litvak in getting 4 from the seller? 5 A. We're interested in getting as low a price as 6 possible, but my understanding is that Jesse and I are going 7 to get the same price other than the ticks that we pay 8 Jefferies on top. 9 Q. Okay. Is this a statement of whatever, like you're 10 indifferent to what price you pay? 11 A. No. 12 Q. All right. And then--13 A. We already set up the context of what the pricing 14 was going to be, so I was saying bid them best you can in the 15 context of the 57 to 57-8. 16 Q. Are there--strike that. If I go down, he writes 17 that's fine. At 14:12:15, Mr. Litvak comes back to you with 18 a report. What he writes is okay, here is what he will do. 19 Who is "he"--your understanding of "he" to be? 20 A. The seller. 21 Q. He will sell me bonds at 56-24. So what do you 22 understand the price to be that Mr. Litvak is buying the 23 bonds for from the seller? 24 A. 56 and three-quarters, or 24. 25 Q. What's your basis for thinking that? GA37 278 1 A. He said it. 2 Q. Mr. Litvak continues, I would work for two to 4/32 3 on these with you. What is Mr. Litvak offering there? 4 A. He's saying that we could put 2, 3 or 4 ticks on top 5 of that price and that would be the price we would pay 6 Jefferies. 7 Q. It continues, and then I would take down the other 8 25 million piece. "Take down" means what? 9 A. Buy. 10 Q. Jefferies would buy the other half? 11 A. Yes. 12 Q. Mr. Litvak continues, taking the amount of the full 13 50 million def--definitely helped him to get a little 14 cheaper. So in this case, what was the effect--what was 15 the relationship between buying more on the price? 16 A. Well, according to Jesse, he feels that because we 17 together were buying 50 million, that he was able to get a 18 price cheaper than he had the other day. 19 Q. Then you respond at 14:13:18 time stamp. And what 20 you do say? 21 A. I say, okay, we'll buy half at 56-28. 22 Q. So he gave you an option of paying between 2 and 4 23 ticks. How many ticks did you choose to pay him? 24 A. Four. 25 Q. And that's jut the difference between 56-28 and the GA38 279 1 purchase price he told you of 56-24? 2 A. Yes. 3 Q. Mr. Litvak says--you guys talk about the 4 settlement. And he writes, let me go buy them, at 14:13:54. 5 And then at 14:15:33, he writes, all good, bought the bonds, 6 25 million at 56-28 is done. You're still all right with 7 that? 8 A. Yes. 9 Q. What do you do to document when a trade is 10 finished? 11 A. Typically, the dealer sends the seller or buyer 12 what's called a trade ticket. 13 Q. What's the point of that? 14 A. To confirm all the details of what we just agreed 15 to. 16 Q. Okay. So at the time, would it have mattered to you 17 if you had known that Mr. Litvak and Jefferies had not bought 18 the bond at 56-24 but had bought that the bond at 56 even? 19 A. Yes. 20 Q. Please explain why. 21 A. For the same reasons I explained yesterday that if 22 we were partnering and could have gotten the bonds together 23 at 56 and I paid him 4 on top of that, that would have been a 24 lower price and my investors would be in a situation to make 25 more money. GA39 280 1 Q. Okay. If you had known that Mr. Litvak and 2 Jefferies were making 28 ticks on this deal and not 4, would 3 that have been important for you to know? 4 A. Yes. 5 Q. Please explain why. 6 A. For the same reason. We agreed that we were going 7 to pay him 4 ticks on top of the price that he bought them 8 at. 9 Q. In this case, it is a $25 million original face 10 value bond, right? You have to say it outloud. 11 A. Yes. 12 Q. I saw you nodding, but just the court reporter needs 13 an audible answer. 14 But the difference between 28 ticks and 4 ticks on 15 this trade is something in the neighborhood of $147,000? 16 MR. BUTSWINKAS: Your Honor, I realize it is a 17 recast, but they're all leading. Objection. 18 MR. FRANCIS: I really hadn't asked the question 19 yet. 20 THE COURT: That's true, but it sure sounded like 21 you were getting to--you are supposed to be asking 22 questions. I could say it that way. But it sounded like you 23 were leading to a leading question. 24 MR. FRANCIS: I promise you it wasn't going to be 25 leading, but let me do it again better. GA40 281 1 THE COURT: We will let you finish and then the 2 objection can be made. 3 MR. FRANCIS: I will strike it and start over and 4 try to do it shorter, Your Honor. 5 BY MR. FRANCIS: 6 Q. In this case, a $25 million bond, it is only 7 $147,000 difference, in that neighborhood. Does that really 8 matter to AllianceBernstein? 9 A. It matters to us because it matters to the investors 10 of the fund. 11 MR. FRANCIS: Your Honor if I can turn off the 12 screen so I can show Mr. Butswinkas Government's Exhibit 13 415B. 14 THE COURT: It is off. 15 MR. FRANCIS: Thank you. 16 MR. BUTSWINKAS: No objection. 17 THE COURT: 415B is a full exhibit. 18 BY MR. FRANCIS: 19 Q. So Mr. Canter, to draw your attention to the screen 20 in front of you, Government's Exhibit 415B, this is--this 21 is one of these chat rooms. Is this with AllianceBernstein 22 and Jefferies? 23 A. Yes. 24 Q. Do you see that it starts on January 12, 2011 and 25 spills over into the 13th? GA41 282 1 A. I do. 2 MR. FRANCIS: Your Honor, if I go to the third page 3 and I have blown the top portion of that up for the jury. 4 BY MR. FRANCIS: 5 Q. Do you see Mr. Litvak is telling you--or drawing 6 your attention to a particular bond? 7 A. Yes. 8 Q. What bond is that? 9 A. The HVMLT 077 2A1A. 10 Q. Is there the same HVMLT bond that I think was one of 11 the ones we talked about yesterday? 12 A. I believe so. 13 Q. What does Mr. Litvak say he's seeing--what price 14 is he seeing that bond? 15 A. At 75. 16 Q. And when a broker dealer like Mr. Litvak tells you 17 that he's seeing a bond, can you explain to the jury what 18 means? 19 A. I think he's intending to say there that he has a 20 potential seller who is looking to sell to him at 75 or he 21 thinks-yeah, or somebody is offering it to him at 75. 22 Q. Would someone in your industry say they are seeing a 23 bond if they already own it? 24 A. I would not have thought so, no. 25 Q. All right. Then you propose a price at 17:11:16 GA42 283 1 time stamp. What price is that? 2 A. 74 and a half. 3 Q. Ms. Starr responds to you. And just remind us what 4 does Ms. Starr have to do with you and your relationship with 5 Mr. Litvak? 6 A. Well, typically, the traders interact with the 7 salespeople and the salespeople interact with the clients. 8 In a lot of these chats, you are seeing me interact directly 9 with Jesse on a trading desk, but a lot of times the 10 salesperson is sort of intermediating those--11 Q. Those conversations? 12 A.--conversations. Yes. 13 Q. Sorry about that. Was there more to that answer? 14 A. No. 15 Q. My question was isn't Ms. Starr the salesperson at 16 Jefferies who you would sometimes interact with? 17 A. Yes. 18 Q. So what does Ms. Starr--how does she respond to 19 your question about 74 and a half price? 20 A. She says, I'm pretty sure the seller is firm at 75, 21 checking on the best they'd sell. 22 Q. And you have a question 22 seconds later. What's 23 that? 24 A. Is 75 to you or me? 25 Q. So explain for us what it mean for a price of 75 to GA43 284 1 be either to you or to Jefferies. 2 A. So if they are offering the 75 to me, then, you 3 know, whatever they purchased the bond at, I don't have to 4 pay them on top, the 75 would already be inclusive of--in 5 essence, the seller would be paying them relative to them--6 my understanding of the 75. If it is to me, then--then I 7 may or may not kind of look to pay them on top. 8 Q. So is this just another way of asking the question 9 about is the seller paying you or is AllianceBernstein? 10 A. Yes. 11 Q. We saw that yesterday, right? 12 A. Yeah. 13 Q. So Ms. Starr directs your question to someone else. 14 Who is that? 15 A. Jesse. 16 Q. And--but then she goes on to write more. What 17 does she say? 18 A. Maybe Jesse can--I think it just asks maybe Jesse 19 can get them to give us a bit off that. 20 Q. Who did you understand "them" to be in that 21 sentence? 22 A. The seller. 23 Q. Then Ms. Starr follows up 35 seconds later, says, if 24 you can, can you do 75 to us. So I just want to make sure 25 there's no pronoun confusion here. 75 to us, when Ms. Starr GA44 285 1 writes that, who's the "us"? 2 A. Jefferies. 3 Q. So then AllianceBernstein would be paying what? 4 A. On top of that. 5 Q. When she writes, can you do 75 to us? 6 A. I'm sorry. I'm sorry. She's saying--she's asking 7 if we can do 75 to them, so that would be the final price to 8 me. 9 Q. So AllianceBernstein is paying 75? 10 A. Yes. I'm sorry. 11 Q. So this is--is this a situation where the seller 12 is paying or AllianceBernstein is paying what Ms. Starr is 13 talking about here? 14 A. Relative to--relative to the 75, the seller is 15 paying. 16 Q. But ultimately, it is all in the price that you pay? 17 A. Yes. 18 MR. BUTSWINKAS: Objection. Leading. 19 MR. FRANCIS: I'm sorry. 20 THE COURT: Sustained. Disregard the answer 21 actually, ladies and gentlemen. The answer came out before 22 the objection was made. But if you could just wait if you 23 see counsel rising. That's a sign that you have to hold your 24 answer for a second. Thank you. 25 BY MR. FRANCIS: GA45 286 1 Q. Where is the money for--that the seller and 2 Jefferies are going to make on this, where is that coming 3 from in a trade AllianceBernstein is buying? 4 A. So if we're paying 75 all-in, then the vast majority 5 of that is going to go through to the seller of the bond and 6 some portion of it is going to be kept to Jefferies. 7 Q. Okay. So Ms. Starr has asked this question, and 8 then you have a response a couple minutes later. What do you 9 write to her? 10 A. I say, not sure yet. I'm still fiddling with it. I 11 know 74 and a half works. Let me know if there's any room. 12 I can't show yields below our bogey. 13 Q. So let's break that up. Still fiddling with it. 14 What do you understand that you are saying there? 15 A. I think I'm looking at different scenarios of how 16 the bond could perform and what the resulting yields would be 17 under different scenarios. 18 Q. And what's it mean to show yields below your bogey? 19 A. So when we were buying bonds for the PPIP program, 20 we would have in mind a yield target that we were looking for 21 or sort of a floor where we weren't going to buy bonds that 22 have yields below that certain bogey. And so that's what I 23 was saying there is that I was looking to see if that 74 and 24 a half or 75, whether it was going to--the yield was going 25 to drop below that threshold that we had set. GA46 287 1 Q. I am going to scroll down. Ms. Starr writes back, 2 doesn't sound like any room. What do you understand that to 3 mean? 4 A. Means that the seller is not going to lower their 5 price. 6 Q. You ask a question, is it 75 to us. So let's update 7 kind of where we're at. What's the state of play of the 8 price to or--strike all of that. 9 Where we at in this transaction negotiation? 10 A. So I think that I have told them that at 75 and a 11 half I would buy them, and I'm trying to decide if 75 works 12 or not. And I'm asking in this last question, is it 75 to 13 us. I'm asking whether that's my final price or whether I am 14 going to have to add ticks to that. 15 Q. And who responds? 16 A. Jesse. 17 Q. He writes, I would have to buy bonds at 74-28. So 18 what do you understand is the price that Mr. Litvak is 19 telling you Jefferies is paying for this bond? 20 A. He's saying that in order to sell us at 75 he would 21 have to buy them at 74-28, meaning that he's looking to make 22 4 ticks on the transaction. 23 Q. He writes, I would work for 2 ticks or 2/32 if you 24 wanted so you could have the 74h. It is small. What's 25 74h? GA47 288 1 A. 74 handle, that just means a price that begins with 2 a 74. 3 Q. And how much do you say you will pay Jefferies? 4 A. Four ticks. 5 Q. If Mr. Litvak is offering to work for 2 ticks, why 6 are you paying him 4 ticks? 7 A. Because this is a--this is a relationship 8 business, and we want to have good relationships with our 9 broker dealers and we want them to be incentivized to do 10 business with us and to sell us bonds. So our goal is to 11 fairly compensate Jefferies for these transactions. And so, 12 yes, you know, 4 is greater than 2, but I'm the one making 13 that decision, not somebody else, with that's a good 14 investment of the investors' money in investing in the 15 relationship. 16 Q. So from this document, what price did you 17 understand Mr. Litvak was saying that Jefferies was going to 18 buy the bond at? 19 A. 74-28. 20 Q. Would it have mattered to you to know that Jefferies 21 already owned the bond and wasn't buying it from a third 22 party seller? 23 A. Yes. 24 Q. Can you explain why? 25 A. So you are saying that Jefferies already own the GA48 289 1 bond, correct? 2 Q. I'm asking you a question. If you had known that 3 Jefferies owned the bond prior to 16:29:46, would that have 4 been important for you to know? 5 A. Absolutely. 6 Q. Explain why. 7 A. Because we thought we were negotiating with a seller 8 and Jefferies was intermediary--intermediating. And so 9 when a broker dealer is intermediating a transaction, their 10 main objective is really that a transaction occurs because 11 that's how they get paid. Whereas, if they own it, every 12 increase in price is more money for them so the interests are 13 aligned differently. 14 Q. Would it matter to you to know that Jefferies paid 15 74 and a half, 74 and 16 ticks, not 74-28? 16 A. Yes. 17 Q. Can you explain why? 18 A. That's not what we were--not what we were told. 19 And if we could have negotiated that price, which I was 20 trying to do, that would have been better for the 21 investors. 22 Q. And would it be important for you to know that 23 Mr. Litvak and Jefferies were making 16 ticks and not 4 on 24 this trade? 25 A. Yes. GA49 290 1 Q. Explain why. 2 A. The same reason. You know, if we could have gotten 3 it at a lower price that would have been better, and I wasn't 4--wasn't what we'd agreed to in terms of how much money they 5 were going to make on the transaction. 6 Q. And if I tell you the difference between 16 ticks 7 and 4 ticks on the trade was a little more than $11,000, does 8 that change your answer? 9 A. No. 10 Q. Why not? 11 A. It still matters for the investors and it is, you 12 know--like I said yesterday, these--we're doing this over 13 the entirety of the fund, and so focusing on each transaction 14 is the only way to make sure that in the end it would get the 15 right result. Last trade, Mr. Canter. 16 Your Honor, if we can take down the screen. I would 17 like to show Mr. Butswinkas Government's Exhibit 407 for 18 identification. 19 THE COURT: Any objection? 20 MR. BUTSWINKAS: No objection, Your Honor. 21 MR. FRANCIS: May I offer it? 22 THE COURT: It may be published, yes. 23 MR. FRANCIS: Thank you, Your Honor. 24 BY MR. FRANCIS: 25 Q. Okay. Mr. Canter, this is a chat from May 4, 2010, GA50 291 1 and I have blown up the bottom portion of the first page. Do 2 you see what I have done? 3 A. Yes. 4 Q. Okay. Do you see you and Mr. Litvak here are 5 discussing buying a bond or doing a trade? 6 A. Yes. 7 Q. And he's--what's going on in the first portion I 8 have on the screen? The time stamp is 19:39:01. 9 A. I'm not sure what bond we're talking about, but he's 10 saying he just got off the phone with the seller. That 11 seller has two guys, meaning two other broker dealers, 12 calling him on these, which are--he means these particular 13 bonds. 14 Q. At some point--at a point, do you see you put in a 15 bid of 89.5? 16 A. Yes. 17 Q. I will skip to the next page. Blowing up the top of 18 that. Do you see Mr. Litvak writes, got it, will be back. 19 And you write, any word. So what do you understand is going 20 on here? 21 A. My recollection is this is a bid list and we were 22 bidding on the bonds and we were getting information--we're 23 trying to get information from the seller about how our bid 24 compared to others. 25 Q. Okay. And at 19:59:18, do you see Mr. Litvak GA51 292 1 writes, I give up, Mike. Bonds traded. Sounds like they 2 traded at 89-28. I'm going to go for a walk. And then he 3 finishes the line. What do you understand Mr. Litvak is 4 telling you there? 5 A. He's saying that we didn't win the auction, that he 6 thinks that the winning bid was 89-28 and so our 89 and a 7 half or 89-16 did not win. He's saying--he gives up 8 meaning we must have losing ago lot of auctions recently and 9 we were not having a lot of success buying bonds. 10 Q. You write ouch, and Mr. Litvak writes at 20:00:22 11 time stamp, I hate this s-h-t, I am willing to work for 12 fck'ing zero on these lists for guys like you, and I can't 13 even get that done. So annoyed. Going to fly out to L.A. 14 and crush my salesperson. Is that consistent with your prior 15 answer about what you understand is going on? 16 A. Yes. 17 Q. And what is Mr. Litvak saying to you about what he's 18 willing to work for? 19 A. Zero. 20 Q. Can you please explain to the jury why it would be 21 worth Mr. Litvak's time to work for zero on bid lists for 22 AllianceBernstein? 23 A. Well, because we have a lot of bonds to buy and if 24 he's able to sell me bonds, he knows that in the future 25 there's going to be plenty more bonds for us to buy and he GA52 293 1 can make money on those. He also--there's value in the 2 information of knowing which bonds we own or bought, might be 3 interested in buying in the future, might be interested in 4 selling in the future. So I think that's what he's 5 conveying. 6 Q. Was that your deal with Mr. Litvak, that Jefferies 7 would work for zero ticks on bid lists? 8 A. No. 9 Q. What was your deal? 10 A. That we would pay 4 ticks on top of the bid that we 11 gave them to pass through to the seller. 12 Q. Did you, in fact, pay 4 ticks on the BWIC trades? 13 A. Yes. 14 Q. Okay. So I'm going to skip down to 20:36:43. Do 15 you see Mr. Litvak is raising the possibility of buying a 16 WAMU 06A1--14 1A1 bond? 17 A. Yes. 18 Q. And he tells you to stay tuned there. Do you see 19 that? 20 A. Yes. 21 Q. So then you write back, k. What does "k" mean when 22 you write that? 23 A. Okay. 24 Q. Okay. Time stamp 20:53:34. Mr. Litvak writes, 25 there is a God. So I had to give him--who do you GA53 294 1 understand "him" to be? 2 A. The seller. 3 Q. Of what bond? 4 A. Of this WAMU bond. 5 Q. So Mr. Litvak says, so I had to give him full open 6 kimono color on prices at the 3 p.m. What do you understand 7 "open kimono" means? 8 A. He's going to tell him what he knows about the bid 9 list that just occurred that we lost, which is the same bond 10 basically that he's trying to buy here, but he's trying to 11 buy it from a different customer, he says. 12 Q. Full open kimono color on prices at the 3 p.m. and 13 told him what we bid, et cetera. He told me that he has to 14 just talk to one other person to make sure he can sell it, 15 but said he would sell us bonds at 89-16 as soon as he gets 16 that other person to sign off. I told him that I would stick 17 around for the day. So should know soon. 18 All right. Mr. Canter, what do you understand 19 Mr. Litvak is telling you is the possible price that he can 20 get this WAMU bond for? 21 A. 89 and a half, 89-16. 22 Q. All right. You respond. What you do you write? 23 A. Okay. I will stick around as well. You are 24 working hard under the boards. The Nuggets could use that 25 kind of tenacity. GA54 295 1 Q. What does it mean you that you will stick around as 2 well? 3 A. It must be getting close to the end of the day and I 4 would stay at work. 5 Q. How about working hard under the boards, what does 6 that mean? 7 A. From what he described to me, it sounded like he was 8 trying hard to get bonds for us to buy. 9 Q. And then is this the Nuggets and the working hard 10 under the boards, is this basketball references? 11 A. Yes. 12 Q. Why do you talk about the Nuggets? 13 A. That's Jesse's favorite basketball team. 14 Q. How do you understand that? 15 A. From talking to him over the previous year. 16 Q. He agrees with you about the Nuggets, and then at 17 21:04:48 writes, winner winner chicken dinner. He will tell 18 me bonds--I'm sorry. He will sell me 30 million original 19 at 89 and a half, bro. Who is "he"? 20 A. The seller. 21 Q. What bond are we talking about here, the same WAMU? 22 A. The WAMU bond, yes. 23 Q. He says, "I will work for whatever you want on this 24 one. What do you understand Mr. Litvak is telling you about 25 the compensation to Jefferies? GA55 296 1 A. Meaning that the amount of ticks we were going to 2 pay him, he was going to be flexible on that. 3 Q. Okay. Then he write some more. And then at 4 21:06:42, how do you respond? 5 A. Great, let me see what it can handle. Don't want to 6 post a number underneath the bogey. 7 Q. Let's break that down. I know what "great" means. 8 What's "let me see what it can handle"? What do you 9 understand that that you're writing? 10 A. Meaning I just wanted to rerun the bond and see what 11 it would look like if we paid a different amount on top. 12 Q. You write, don't want to post a number underneath 13 the bogey. Bogey is the same, meaning the same before you 14 explained to us? 15 A. Yes. 16 Q. So why does it make a difference if you post a 17 number underneath the bogey? 18 A. Well, because we set these bogeys because that's 19 what we feel the going yield is in the marketplace. And so 20 this is our way of trying to stay disciplined about how much 21 we pay for certain bonds. Because we may really like the 22 underlying fundamentals of a bond, but we don't want to 23 overpay for it. This is our discipline on ourselves. 24 Q. When you say "the going yield," who does that yield 25 go to? GA56 297 1 A. The investors. 2 Q. Mr. Litvak writes back to you at 21:07:20, no sweat. 3 Don't know if it's a typo or--n-o-o sweat. You know me. 4 Easy weasy. What do you decide--or what do you tell him he 5 can take his compensation? 6 A. Four ticks. 7 Q. He writes thanks, and talks about the ticket. So 8 what price did Mr. Litvak tell you that Jefferies was going 9 to pay for this bond? 10 A. 89 and a half. 11 Q. And would it matter to you at the time if you had 12 known that Jefferies and Mr. Litvak buying this WAMU bond at 13 88 and three-quarters, 88-24 ticks? 14 A. Yes. 15 Q. Please explain why. 16 A. Because we were told that he was buying them at 89 17 and a half and he--if he wanted to sell them to us at 89 18 and a half, he didn't need to--he didn't need to tell us 19 that he was buying them there. He could have told us he was 20 buying them at a lower price and just tell us here is the 21 price that you can buy them. He didn't need to tell us that. 22 If he had told us the lower price, we would have probably 23 have negotiated something different. 24 Q. Would it have been important to you at the time if 25 you had known that Jefferies was making not 4 ticks but 28 GA57 298 1 ticks? 2 A. Yes. 3 Q. Please explain why. 4 A. Same reason. If we can make more money for the 5 investors, it's better. 6 Q. If I tell you the you difference between 28 ticks 7 and 4 ticks is a little less than $70,000, does that change 8 your answer? 9 A. No. 10 Q. Why not? 11 A. Because the same reason. It adds up. It all 12 matters. 13 Q. To who? 14 A. Investors. 15 MR. FRANCIS: Your Honor, I have no further. Pardon 16 me. Can I have one moment to consult? Now Your Honor, I 17 have no further questions for the witness. 18 THE COURT: All right. Cross-examination, sir. 19 MR. BUTSWINKAS: Thank you, Your Honor. May I have 20 a moment to set up? 21 THE COURT: Yes, certainly. While he's doing that, 22 I intended to go a little later because you folks haven't 23 been out long, so we'll break the time up a little bit more. 24 Maybe I will go 'til about 11:30, 11:35 and then we'll take 25 the 15 and that will make the next period shorter. Okay? GA58 300 1 you're ready. 2 CROSS-EXAMINATION 3 BY MR. BUTSWINKAS: 4 Q. Mr. Canter, my name is Dane Butswinkas, and I 5 represent Jesse Litvak. You and I have never met, have we? 6 A. No. 7 Q. You met with the Government more than 10 times to 8 prepare for your testimony over the course of this case; 9 isn't that correct? 10 A. Yes. 11 Q. I want to ask you questions about the three bonds in 12 the Indictment. And so that I make sure that we're on the 13 same page, I want to make sure we see eye to eye on their 14 name. Okay? 15 A. Okay. 16 Q. I saw a lot of letter designations, and I have a 17 little bit of a struggle following that. And so I'm going to 18 see if I can agree with you to terms that we can use during 19 my examination. Is that okay with you? 20 A. Okay. 21 Q. One of the bonds you talk about was HarborView. Do 22 you remember that? 23 THE COURT: Can folks hear Counsel when he walks 24 away? Okay. Very good. Everybody okay with it? 25 THE WITNESS: Yes. GA59 301 1 BY MR. BUTSWINKAS: 2 Q. HarborView 2006, that was one of the bonds you 3 testified about, right? 4 A. I think so, yes. 5 Q. This bond LXS 2007, I will call that Lexus 2007. Is 6 that okay with you? 7 A. Yes. 8 Q. That was one of the bonds you testified about? 9 A. Yes. 10 Q. And then another HarborView bond 2007? 11 A. Yes. 12 Q. You testified about that? 13 A. Yes. 14 Q. Okay. HarborView 2006 was what you called an order 15 trade; is that correct? 16 A. I don't remember. You would have to go back and 17 show me. 18 Q. LXS 2007, do you remember whether that was an order 19 trade? 20 A. Right. Those were the two that happened, the--we 21 talked about it the day before and then it happened the day 22 after, yes. 23 Q. These transaction happened together? 24 A. Yes. Gotcha. 25 Q. Is that correct? GA60 302 1 A. Yes. 2 Q. And they were both order trades? 3 A. Correct. 4 Q. This third one, HarborView 2007, that was a BWIC 5 trade. Do you remember? 6 A. No. I answered the questions as they are asked. I 7 don't remember which ones go with which. 8 Q. You remember you talked at length to the jury about 9 this trade. Do you remember what kind of trade it was? 10 MR. FRANCIS: Your Honor, I think it has been asked 11 and answered a few times. 12 THE COURT: He answered you the first time, sir, but 13 I don't know if you can refresh his memory or something else 14 you want to do, but--15 BY MR. BUTSWINKAS: 16 Q. Now, in all three of these instances 17 AllianceBernstein bought a bond from Jefferies; is that 18 correct? 19 A. Yes. 20 Q. A residential mortgage-backed security? 21 A. Yes. 22 Q. A bond with thousands of mortgages generating income 23 to the bondholders? 24 A. Not necessarily thousands. 25 Q. Didn't each of those bond have thousands of GA61 303 1 mortgages as collateral? 2 A. Perhaps. I don't remember. It could be hundreds. 3 Q. In each one of these cases, AllianceBernstein, your 4 company, was the purchaser, correct? 5 A. The PPIP fund is the purchaser. 6 Q. And the PPIP found bought those bonds from 7 Jefferies? 8 A. Yes. 9 Q. And Jefferies bought those bonds in another 10 transaction from another seller? 11 A. Yes. 12 Q. And those transactions, Jefferies was the purchaser? 13 A. Yes. 14 Q. And some other identified party sold them the 15 bonds? 16 A. Yes. 17 Q. And then in another transaction, Jefferies sold 18 those bonds to the PPIP fund? 19 A. Yes. 20 Q. And that's how each one of these transactions 21 happened, the HarborView 2006, the LXS 2007, and the 22 HarborView 2007; is that right? 23 A. Yes. 24 Q. You have no direct interactions, I think I heard you 25 say, with the company that sold those bonds to Jefferies in GA62 304 1 the first instance; is that correct? 2 A. It is. 3 Q. You deal solely with your seller, Jefferies? 4 A. On these transactions, yes. 5 Q. Yes, sir. In fact, it is rare that you know who 6 sold the bond to Jefferies? 7 A. Very rare. 8 Q. And you heard reference--you actually used the 9 term I think sometimes in your testimony, the term broker 10 dealer? 11 A. Yes. 12 Q. You are familiar with that term? 13 A. Yes. 14 Q. Okay. And broker dealers have a dealer side and a 15 broker side; is that right? 16 A. Yes. 17 Q. The broker side has more to do with representing 18 clients and acting for them as agents; isn't that right? 19 A. I believe so. 20 Q. And dealer side has more to do with dealing--21 acting on the company's own account? 22 A. Yes. 23 Q. On its own behalf, on Jefferies' own behalf? 24 A. Yes. 25 Q. And when a firm like Jefferies is trading for it's GA63 305 1 own profitability, it is trading as a principal? 2 A. Yes. 3 Q. And when a broker dealer is acting as a principal, 4 it makes money off the difference between what they can buy a 5 bond for and what they can sell a bond for; is that correct? 6 A. Yes. 7 Q. There's no separate commission charge in those 8 circumstances? 9 A. No. It's in the price. 10 Q. It is all markup? 11 A. Yes. 12 Q. In fact, markup and dealer profit are used somewhat 13 interchangeably? 14 A. That's fair. 15 Q. In those situations, the markup is fully embedded in 16 the total price you pay? 17 A. Yes. 18 Q. There are no separate charges? 19 A. That's right. 20 Q. One price to the fund includes whatever profit the 21 dealer is making? 22 A. That's right. 23 Q. As a dealer, you are going to buy at one price and 24 sell at a higher price? 25 A. That's right. GA64 306 1 Q. And in order trades, for example, like HarborView 2 2006 and LXS 2007, it is okay for the dealer to quote you a 3 price that is higher than it might be able to buy the bond 4 from its seller? 5 A. Sure. 6 Q. That's how the dealers make money off of what you 7 call the spread? 8 A. Yes. 9 Q. In order trades, it is pretty much normal practice 10 for a dealer to quote a higher price than he can actually buy 11 the bond for so he can make profit? 12 A. Yes. 13 Q. Each and every time that you purchase bonds from 14 Jefferies, Jefferies was trading on its own account? 15 A. I wouldn't know that. That was my assumption, but I 16 wouldn't know it. 17 MR. BUTSWINKAS: Your Honor, may I approach the 18 witness? 19 THE COURT: Yes, you may. 20 MR. BUTSWINKAS: Thank you. I don't think I need 21 to. Could you put up, Andrew, just for identification 22 purposes Exhibit 2088, please. 23 BY MR. BUTSWINKAS: 24 Q. Mr. Canter, you have given testimony before relating 25 to this case, have you not? GA65 307 1 A. I have. 2 Q. Sworn testimony? 3 A. Yes. 4 Q. Where you were under oath? 5 A. Yes. 6 Q. Let me direct your attention to page 505 of this 7 document. Starting at line 22. If you can follow along with 8 me. Were you asked this question and did you give this 9 answer? Question: And you understood when you were dealing 10 with Jefferies, each and every time on each trade in this 11 case, that Jefferies was trading for its own account as a 12 principal on the dealer side of the house, right? 13 Do you see that question? 14 A. Yes. 15 Q. And you answered yes; isn't that true? 16 A. Yes. 17 Q. Not on broker side, correct, sir? 18 A. Say again. 19 Q. Not on the broker side? 20 A. No. 21 Q. You said that your standard practice is to pay the 22 broker dealer--at one point you said 4 to 8 ticks and 23 another time you said 4 ticks. Do you want to clarify that? 24 A. Four ticks on the bid list was a standard number. 25 We didn't really have a standard number on order trades. GA66 412 1 A. Yes. 2 Q. Especially information that is unverified? 3 A. Sure. 4 Q. You have to be careful not to give it undue weight 5 in your analysis; is that fair? 6 A. In the analysis part of it, yes. 7 Q. And you try not to overrule your internal analysis 8 with information that you can't verify, right? 9 A. The internal analysis doesn't really deal with what 10 the market price is or is not. The internal analysis deals 11 with what our return to the investors may be. It doesn't 12 deal with what the going market price is. 13 Q. Let me ask the question more directly. Isn't it 14 correct that at the time period when you were interacting 15 with Mr. Litvak, you knew that there were negotiating tactics 16 in the market that shaded the truth? 17 A. Sure. 18 Q. And so, therefore, you were especially careful when 19 you were weighing information that you got that could not be 20 verified? 21 A. Sure. 22 Q. That makes perfect sense for a reasonable investor 23 of your type? 24 A. Yes. 25 Q. For these qualified institutional buyers, that is GA67 413 1 how sophisticated investors like that think about these 2 questions? 3 A. Sure. 4 Q. And you had prior instance, I think you talked about 5 on direct, when a trader had been misleading to you about 6 their profit margin? 7 A. Yes. 8 Q. So you knew incidences like that were out there in 9 this market? 10 A. I do. 11 Q. For example, in March of 2010, you learned that a 12 trader at Caprock had misled you about the profit that they 13 were making on a trade? 14 A. Yes. 15 Q. And so that type of experience informs your judgment 16 as you go forward as a buyer and seller in the RMBS market; 17 is that true? 18 A. I'm not sure. I think I had that impression before 19 that experience. 20 Q. I'm sorry, sir? 21 A. I believe I had that impression before the 22 experience with Caprock. 23 Q. So you didn't even need to have that extra 24 experience to already know I better have my antenna up? 25 A. Correct. GA68 414 1 Q. I better be careful about volunteered information? 2 A. Yes. 3 Q. I better view it with skepticism? 4 A. Yes. 5 Q. You knew, for example, that at the time you were 6 buying bonds from Jesse there was a tactic that some traders 7 used calling backing up bids? 8 A. Yes. 9 Q. And that's a practice where the trader takes your 10 bid, puts in a lower bid to try to get the bond for lower so 11 it can make extra profit? 12 A. Yes. 13 Q. And that practice was something that you knew about 14 being in existence in the RMBS market when you were 15 negotiating with Jesse? 16 A. I knew it existed. 17 Q. And when the traders did this, the concern is that 18 if they go in with too low a bid trying to make extra money 19 for themselves, they might lose the bond? 20 A. Right. 21 Q. We know that didn't happen here on the HarborView 22 2007 bond because you got the bond? 23 A. Yes. 24 Q. Now, there are a lot of--I think you alluded to 25 this earlier. This market has its own language? GA69 444 1 A. No. I don't recall ever doing that. 2 MR. BUTSWINKAS: Your Honor, I have no further 3 questions at this time. 4 THE COURT: Redirect, Attorney Francis. 5 REDIRECT EXAMINATION BY MR. FRANCIS: 6 MR. FRANCIS: If I can have a moment to get set up. 7 THE COURT: Yes. 8 Q. So, Mr. Canter, I have some questions for you but 9 will not run long. 10 A. Okay. 11 Q. Do you recall you were asked questions by 12 Mr. Butswinkas in your cross-examination about keeping a 13 constant eye on yield? 14 A. Yes. 15 Q. What's the purpose of keeping a constant eye on 16 yield at AllianceBernstein? 17 A. Because we're trying to achieve a certain return for 18 our investors and keeping an eye on the yield of the bonds 19 we're buying is how we do that. 20 Q. So let's talk about HarborView 2007, the last one on 21 the easel that's behind you. You were asked a fair number of 22 questions by Mr. Butswinkas about this bond, correct? 23 A. Yes. 24 Q. I asked you questions about multiple trades in which 25 the HarborView 2007 bond was traded; is that right? GA70 445 1 A. I think so. 2 Q. So let's make sure we're all on the same page. Can 3 I have one moment, Your Honor? 4 THE COURT: Yes. 5 Q. Okay. I would like to put up 411B, Your Honor. It 6 is already in evidence. 7 THE COURT: Yes. 8 Q. So 411B this was the September 14, 2010 trade we 9 looked at. I think it was one of the first ones way back 10 yesterday that we looked at together. Do you see the 11 HarborView 2007 bond is on here? 12 A. Yes. 13 Q. What kind of trade is this one? 14 A. Bid list. 15 Q. Or BWIC an auction? 16 A. Yes. 17 Q. And so while we're talking about bid lists, 18 Mr. Butswinkas asked you a question about backing up bids, 19 backing up your bid Do you remember? 20 A. I do. 21 Q. What's wrong with your dealer--strike that. 22 Is that an okay thing in your practice at 23 AllianceBernstein for a dealer to do to you? 24 A. No. 25 Q. Why not? GA71 446 1 A. That's we tell them not to do that. We tell them to 2 pass our bid through to the seller. 3 Q. And if they are backing up the bid, what are they 4 doing instead? 5 A. They are risking us not winning the bond and trying 6 to make more money for themselves. 7 Q. So why is that a problem? 8 A. Well, it is a problem because that's not what we 9 asked them to do. 10 Q. Does it have an affect on your investors if broker 11 dealers don't do what you ask them to do? 12 A. Yes. 13 Q. What's that? 14 A. We may might not buy the bonds that we want to buy 15 and that could affect the return on the funds or 16 alternatively if they even mistakenly bid lower, they could 17 pass that through to us and that would be a better investment 18 for our funds or if I bid through another dealer maybe they 19 would have, you know, done something different. 20 Q. I will put up on the screen 415B already in 21 evidence. Putting up the third page. Is this another trade 22 dealing with the HarborView 2007 bond? 23 A. Yes. 24 Q. And what kind of trade--I asked you questions 25 about this yesterday or maybe it was even today. GA72 475 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 9, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY THREE OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 GA73 488 1 THE COURT: Mr. Carocci, you are excused. Thank you 2 very much. You may step down. 3 THE WITNESS: Thank you, Your Honor. 4 THE COURT: The Government's next witness? 5 MS. CHERRY: The Government calls Ms. Katherine 6 Corso. 7 THE COURT: Ms. Corso, if you will come up to the 8 witness stand to my left. When you arrive, I ask that you 9 remain standing a moment so the clerk here may administer an 10 oath to you. Come right up here. Thank you. 11 KATHERINE CORSO, 12 having been called as a witness, was first duly sworn and 13 testified on his/her oath as follows: 14 THE WITNESS: I do. 15 THE CLERK: Please state your name, spell your last 16 name, city and state of residence. 17 THE WITNESS: Katherine Corso, C-O-R-S-O. New York, 18 New York. 19 THE COURT: You may be seated, and good morning to 20 you. 21 DIRECT EXAMINATION 22 BY MS. CHERRY: 23 Q. Good morning, Ms. Corso. 24 A. Good morning. 25 Q. Could you tell the jury where you work? GA74 494 1 A. Yes. 2 Q. What is it? 3 A. It is another Bloomberg message between Mr. Litvak 4 and myself. 5 MS. CHERRY: I would like to offer 81F in 6 evidence. 7 MR. BUTSWINKAS: No objection. 8 THE COURT: Marked as a full exhibit. 9 BY MS. CHERRY: 10 Q. So Ms. Corso, is this Bloomberg message that 11 you're--between yourself and Mr. Litvak, what date is this? 12 A. January 7. 13 Q. Is this the same day as the earlier message we just 14 looked at? 15 A. Yes. 16 Q. I'm going to move to page 2. Mr. Litvak writes to 17 you at 11:43, okay, guy bid me 60. I told him to F off, so 18 we came back at 60-24. What's your understanding of what 19 that means? 20 A. He's saying his buyer bid him 60, and he told him no 21 and the buyer came back at a higher price, which is 60-24. 22 Q. And then Mr. Litvak says, I know he would pay me off 23 61, though, so my guess is he pays me 4 to 6 ticks above. 24 What's your understanding of what that means? 25 A. That Mr. Litvak knows that the buyer could pay him 4 GA75 495 1 to 6 ticks over 61. 2 Q. So in this transaction, what price would York 3 receive? 4 A. 61. 5 Q. And what is the 4 to 6 ticks represent? 6 A. The commission. 7 Q. What do you mean by commission? If you can explain 8 to the jury what's a commission? 9 A. That would be the amount that Mr. Litvak would 10 receive for arranging the trade. 11 Q. And then Mr. Litvak says, he said he's seeing a ton 12 of bonds on the DL. So my humble opinion it's a solid level. 13 What's your understanding of what that means? 14 A. He means that--Mr. Litvak is saying that the buyer 15 is seeing a lot of bonds on the down low, which means he's 16 seeing a lot of supply. So in Mr. Litvak's opinion, he 17 thinks that it is a good price. 18 Q. Sorry. So solid level, what does that mean? 19 A. A good price. 20 Q. And you see how you on respond at 11:58:19? 21 A. Yes. 22 Q. What do you ask him? 23 A. I ask him how much he works for. 24 Q. What do you mean by that? 25 A. I'm asking him what commission he would like to GA76 496 1 receive. 2 Q. If we do go down to the next page. Before 3 Mr. Litvak replies to you at 11:59, you say something else to 4 Mr. Litvak. What do you say to him? 5 A. I say those levels are fine by me. So what would it 6 be to me? 7 Q. When you are saying those levels are fine by me, 8 what is your understanding of what you mean? 9 A. I'm saying those prices are fine. 10 Q. So what it would be to me, what are you asking him? 11 A. How much would I receive. 12 Q. Thank you. I will go down to the next page. Mr 13 Litvak responds to you at 11:59. He says, I'm happy when I 14 get any trades. LOL. In all seriousness, I thing 8/32 is 15 great. What's your understanding of what he's saying there? 16 A. He's suggesting 8/32 as a commission. 17 Q. Who would be getting that money, that 8/32? 18 A. Jefferies. 19 Q. Is 8/32 a normal--is that in the range of the 20 normal amount of commissions that you pay at the time for a 21 trade like this? 22 A. I think so. 23 Q. So Mr. Litvak says, so maybe I will sell them to you 24 at 60-28 and sell to him at 61-4. What's your understanding 25 of what that means? GA77 497 1 A. He's suggesting a trading level where I sell my 2 bonds at 60 and 28/32 and then he sells my bonds to the buyer 3 at 61-4. 4 Q. What price would York be receiving? 5 A. 60-28. 6 Q. How much in commission would Jefferies be receiving? 7 A. 8/32. 8 Q. Then he says, something like that, but I'm also 9 happy to get you 61 and just tell him to pay 61-8. What's 10 your understanding of that proposal? 11 A. He's suggesting another price range, which is 61 to 12 me and then the buyer would pay 61-8. 13 Q. And so in terms of price to York, which is the 14 better proposal? 15 A. The second one. 16 Q. Why is that? 17 A. Because it is a higher price that I would receive 18 for my sale. 19 Q. How much higher? 20 A. 4/32. 21 Q. In the second proposal, how much would Jefferies be 22 receiving? 23 A. 8/32. 24 Q. Mr. Litvak then says, want to get the highest I can. 25 What's your understanding of what he means there? GA78 498 1 A. He's saying he wants to get me the highest price he 2 can. 3 Q. I want to move on to the next page. 4 You respond to Mr. Litvak at 12 o'clock. Can you 5 tell the jury what you say? 6 A. I say, well, I want best execution, obviously. So 7 try to get him to 61 and 8/32. 8 Q. Can you tell the jury what best execution is? 9 A. Best execution, when you are selling a bond means 10 you want to get the highest price. If you are buying a bond, 11 it means you want to pay the lowest price. 12 Q. And why do you want to get best execution? 13 A. For my investors. 14 Q. What does it mean if you--how do your investors 15 benefit if you get best execution? 16 A. They make more money. 17 Q. What are your obligations to your investors? 18 A. My obligations are to make them money. 19 Q. And you say here obv., that means obviously? 20 A. Yes. 21 Q. Why is it obvious that you want best execution? 22 A. Because when you are selling something, you want to 23 get the highest price that you can. 24 Q. I'm going to move to the next page. And Mr. Litvak 25 responds at 12:01. He says, I will be back. What's your GA79 499 1 understanding of what he meant there? 2 A. Meaning he's going to talk to the buyer and come 3 back to me. 4 Q. I'm going to move on to the next page. At 12:12, 5 Mr. Litvak says to you, we are doneski, gorgeous. What's 6 your understanding of what he meant there? 7 A. He means the trade is done. 8 Q. He continues, I'm selling him bonds at 61-8. Will 9 buy them from you at 61k. What's your understanding of 10 what's happening there? 11 A. He's buying my bonds at a price of 61 and he's 12 selling them at a price of 61-8 to his buyer. 13 Q. So in this transaction, what price is York 14 receiving? 15 A. 61. 16 Q. And how much in commission is Jefferies receiving? 17 A. 8/32. 18 Q. At this point in time, do you know who the buyer is? 19 A. No. 20 Q. Do you have any way to confirm the information that 21 Mr. Litvak is sharing with you here? 22 A. No. 23 Q. Going to move on to the next page. At the end of 24 that--at the end, Mr. Litvak asks you what exact size. How 25 do you respond at 12:13? GA80 500 1 A. I say great, exact says is 40,171,500, original 2 face. 3 Q. At this point, what is your understanding of what 4 the economic terms to the deal are? 5 A. The economic terms is that I would be selling my 6 price at a price of 61. 7 Q. And Mr. Litvak would be--what would Jefferies be 8 doing? 9 A. Jefferies would be selling them at a price of 10 61-8. 11 Q. Why do you think that? 12 A. It is based on what Jesse told me. 13 Q. How many ticks would Jesse be making in the 14 transaction? 15 A. 8/32. 16 Q. Why do you think that? 17 A. It's based on what he told me. 18 Q. Would it have been important for you to know that, 19 in fact, your bonds were sold at not 61-8 but 62-12? 20 A. Yes. 21 Q. Why? 22 A. Because that's higher than what we had talked 23 about. 24 Q. And what would it mean for work? 25 A. It would mean that I didn't get best execution. GA81 501 1 Q. What was your understanding of your relationship 2 with Jefferies during the course of the trade? 3 A. What do you mean? 4 Q. How were you dealing with Jefferies during this 5 trade? 6 A. They were a broker-dealer. 7 Q. What was your understanding of what that meant in 8 this particular trade? 9 A. That he was arranging the trade between buyer and 10 seller. 11 Q. If you had the information at the time that 12 Jefferies actually sold the bond for 62-12, what would you 13 have done? 14 A. I would have asked to receive a higher price or more 15 money from Jefferies or I would have tried to rip up the 16 trade or, you know, it would have affected our relationship 17 with Jefferies. 18 Q. If you had known that Jefferies was making 44 ticks, 19 would that have been okay with you? 20 A. No. 21 Q. Did you ever pay 44 ticks in commission? 22 A. Not that I know of. 23 Q. Would you ever pay 44 ticks in commission on a trade 24 like this? 25 A. No. GA82 504 1 CROSS-EXAMINATION 2 BY MR. BUTSWINKAS: 3 Q. Good morning. My name is Dane Butswinkas and I 4 represent Mr. Litvak. 5 A. Okay. 6 Q. You and I have never met, have we? 7 A. No. 8 Q. Can you put up Exhibit 81F that's in evidence? It 9 looked like page 18 to me, Andrew. 10 Ms. Corso, I want to start on this document that you 11 just receive testified a few minutes ago. There were two 12 options spelled out in this document. Do you remember that? 13 A. Um-hum. 14 Q. You have to say yes or no. 15 A. Yes. Sorry. 16 Q. No worries. And one was 60-28 ticks and then the 17 second one was you would pay 61, right? 18 A. I'm selling, so I wouldn't pay anything. 19 Q. You would sell at 61, correct? 20 A. Right. 21 Q. And I think you said that of these two options, the 22 second of the two options was the better of the two? 23 A. Yes. 24 Q. Which one did you get, the first option or the 25 second option? GA83 511 1 you have a transaction with Jefferies where you--I'm sorry. 2 Let me rephrase that. 3 You have a transaction with Jefferies where York 4 sells the DSLA bond to Jefferies; is that right? 5 A. Yes. 6 Q. And then there's a trade confirmation of that 7 particular transaction; is that right? 8 A. Yes. 9 Q. And then there's a separate transaction between 10 Jefferies and some other purchaser of the DSLA bond; is that 11 right? 12 A. Yes. 13 Q. That purchaser, you don't even know who that is? 14 A. Correct. 15 Q. You have no communications with them? 16 A. Correct. 17 Q. You are not a party to this other transaction; is 18 that right? 19 A. Correct. 20 Q. So there's a separate trade confirmation presumably 21 that has the parties to that separate transaction, right? 22 A. Correct. 23 Q. And the markup that you talked about with the jury 24 is all paid by that second purchaser in the other 25 transaction; is that right? GA84 542 1 Q. No part of this internal profit was any kind of 2 charge-back back to York? 3 A. No. 4 Q. You were paid exactly what you were told you would 5 be paid, 61? 6 A. Yes. 7 Q. And when Jefferies acquires a bond, it bears the 8 risk of what happens with that bond? 9 A. Yes. 10 Q. For example, if this other transaction falls 11 through, that's Jefferies' problem? 12 A. Yes. 13 Q. That can happen? 14 A. Yes. 15 Q. When Jefferies buys a bond, it owns it as a 16 principal? 17 A. Yes. 18 Q. It can hold it or sell it? 19 A. Yes. 20 Q. It is entitled to every cent of the profit it earns 21 if it sells it? 22 A. Yes. 23 Q. And I take it that if Jesse had said I have a place 24 in my inventory for this bond and I will buy it from you at 25 61 and that's my bottom line, you would have sold it? GA85 475 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 9, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY THREE OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 GA86 626 1 the witness stand area. When you arrive, I'd ask if you'd 2 remain standing. Our clerk will administer an oath to you. 3 Thank you. 4 VLADIMIR LEMIN, 5 having been called as a witness, was first duly sworn and 6 testified on his/her oath as follows: 7 THE WITNESS: Yes. 8 THE CLERK: Please state your name, spell your last 9 name, and give us your city and state of residence. 10 THE WITNESS: Vladimir Lemin, L-E-M-I-N. I live in 11 Hartsdale, New York, and I work for One Williams Street 12 Capital. 13 THE COURT: You may be seated, Mr. Lemin, and good 14 afternoon to you. 15 Whenever you're ready, Attorney Cherry. 16 DIRECT EXAMINATION 17 BY MS. CHERRY: 18 Q. Good afternoon, Mr. Lemin. 19 A. Hello. 20 Q. You said you work for One William Street Capital. 21 What do you do there? 22 A. I manage a portfolio of mortgage-backed and 23 asset-backed securities. 24 THE COURT: If I could ask you to pull the mic a 25 little bit closer. GA87 656 1 you understand that to mean? 2 A. I see that I agreed to pay 38-20 for this bond. 3 Q. So at 38-20, what's your understanding of what 4 Jefferies is buying the bond for? 5 A. I understand that Jefferies is buying bonds at 38 6 and 14 ticks. 7 Q. And so what is your understanding of how much 8 commission Jefferies is earning on this bond? 9 A. In this case, I understand it to be the difference 10 between 38-20 and 38-14 to be 6 ticks. 11 Q. At the end of this line, you say, and you will give 12 me heads up next time before you show the bonds to the other 13 guys. What do you understand that to mean? 14 A. I understand that in the context of this negotiation 15 where I agreed to pay Mr. Litvak 2 ticks more than he 16 originally suggested, so I agreed to pay 38 and 20 versus 17 38-18, so I'm buying some goodwill in exchange for that. I'm 18 asking Mr. Litvak to give me a heads up next time with 19 interesting bonds--to show me interesting bonds next time 20 before he shows them to other investors. 21 Q. Then at the end, what do you ask Mr. Litvak? 22 A. Do we have a deal? 23 Q. And what do you understand that you're asking there? 24 A. That's it. I'm asking if there--if that deal 25 works, can I buy bonds at 38-20 and have him next time show GA88 657 1 me interesting bonds before he shows them to other guys. 2 Q. How does Mr. Litvak respond? 3 A. The next line, Mr. Litvak says done. 4 Q. Now, if Jefferies had, in fact, paid 38 for the 5 bonds, not 38-14, how many ticks would Jefferies be making? 6 A. If Jefferies paid 38--7 Q. Yes. 8 A. In this case, the difference would be 20 ticks. 9 Q. And do you have ever pay 20 ticks on a trade like 10 this? 11 A. I don't recall paying 20 ticks. 12 Q. What's the standard commission that you usually pay 13 on a trade like this? 14 A. I would think about more of a range as opposed to 15 the one number, and the range in my experience would be 16 anywhere from 2 to 8 ticks, with some outliers certainly. 17 MS. CHERRY: Your Honor, can I have one moment? 18 THE COURT: You may. 19 BY MR. CHERRY: 20 Q. Mr. Vladimir, would it have been important for you 21 to know that Jefferies was actually buying the bond for 38 22 and not 38-14? 23 A. I don't remember that, if it was or it wasn't. 24 Q. Would it be important for you to know if Jefferies 25 actually purchased the bond for 38 instead of the 38-14 which GA89 658 1 Mr. Litvak told you is what Jefferies bought the bond for? 2 Would that have been important for you to know? Let me 3 rephrase. 4 If Jefferies had actually bought the bond at 38 5 instead of 38-14, would that have been important information 6 for you to have known? 7 A. It would have been an important piece of 8 information, I think. 9 Q. Why would that have been important? 10 A. In the context of this negotiation, we chose a way 11 to implicitly use the pay on top type of transaction as 12 opposed to all-in type of transaction. So reading this today 13 and trying to reconstruct this trade from this transcript you 14 put in front of me, it seems like at the end of the last two 15 sentences we focused on, we spent some time on figuring out 16 how much I pay Mr. Litvak on top of the number of the price, 17 rather, that Mr. Litvak represented that he paid to the 18 seller. And sometimes in these transactions we know this 19 information, sometimes this information is not made known to 20 us and transactions happen on the just all-in price. 21 So in this particular situation and the last several 22 lines, we're going back and forth on the given that the 23 seller sells Mr. Litvak bonds at 38-14, we establish that 24 first it was suggested that I would pay 4 ticks on top of 25 that to bring the overall price to 38-18 to Magnetar. Then I GA90 659 1 said I would pay 2 ticks more, which brings it to 38-20 in 2 exchange of Jesse showing me more interesting bonds before--3 giving me the heads up on more interesting bonds. So here we 4 negotiate this particular transaction in this context of the 5 price that Mr. Litvak pays to the seller, and the incremental 6 amount that Magnetar pays to Mr. Litvak. So I guess both are 7 important. There's two components combined together and make 8 up the whole price of 38-20. So if one of the components 9 changes its value, then the sum changes its value as well. 10 Q. You mentioned--when you gave your answer, you said 11 some trades are all-in. Can you explain to the jury what 12 all-in is? 13 A. Maybe I used a poor term. I just think about 14 potentially two types of negotiations, and I'm sure there are 15 a lot more, but two types that I could think of right now as 16 this type when we explicitly discuss a price that in this 17 three-party negotiation with Seller A, B, broker-dealer and 18 the Buyer c, there's explicit mentioning between the 19 broker-dealer and the buyer of the cost of the bonds to the 20 broker-dealer as far as what broker-dealer pays to the 21 seller, and then explicit discussion of that incremental 22 commission or add-on that the seller would pay to the 23 broker-dealer so that's one type. Sometimes it doesn't work 24 that way. 25 Sometimes people discuss just on price on overall or GA91 669 1 A. I respond at 19:48:42 by asking Mr. Litvak, sorry, 2 which bonds. 3 Q. And at 19:48:49, does Mr. Litvak remind you what 4 bonds they are? 5 A. At that point, Mr. Litvak says 14:27:59, one second. 6 I think what's going on here is--in these chats, you have 7 the ability to cut and paste the statements that are made by 8 either yourself or other chat participants before, and I 9 think what's happening here is that at 19:48:49, Mr. Litvak 10 responds to me by cutting and pasting my own statement as of 11 14:27:59. So that's why it says 14:27:59, Vladimir Lemin 12 column and it says may have a bit of room--bit room on 13 HVMLT 2004 94A3, though. Can you ask Beth to make a call? 14 So that's the way that Mr. Litvak uses to remind me about 15 which bonds we're talking about here, because in this chat at 16 the same time we discussed multiple securities. 17 Q. At 19:52:02, you tell Mr. Litvak that you will buy 18 them. And then what do you ask Mr. Litvak? 19 A. So this is all--we're continuing this BWIC 20 negotiation BWIC for the last statement that was made with 21 reference to price was Mr. Litvak's statement as of--sorry 22--19:48:24 where he said that they are offering the bond at 23 61. So now I tell him--or I ask him can you get me done at 24 61. So meaning as opposed to paying 61 plus commission to 25 Jefferies on top of 61 as to where bonds are offered to GA92 670 1 Mr. Litvak, I ask Jesse to get me done at 61, meaning that I 2 pay him 61 all-in, or I ask do I have to pay you on top. 3 Q. What do you understand "pay on top" to mean? 4 A. Just like I explained before. Maybe it is even more 5 relevant in the BWIC situation where by definition as a 6 three-party transaction, there are--it lists two ways to do 7 it. One is pay on top and another one all-in. So in the pay 8 on top way, you say--you give a bid to broker-dealer and 9 you ask a broker-dealer to represent that bid, to show that 10 bid in to the customer and you agree to pay on top of that 11 number the commission, a spread, whatever you call it. 12 And another way would be to just, you know, give a 13 price and say, I'm good to pay up to 55. And whatever you do 14 with that, I don't care, all-in. 15 Q. Then Mr. Litvak responds, let me see if I can work 16 that out. We'll be right--I have to turn to next page. 17 Excuse me. 18 A. No, I can't see it. Sorry. 19 Q. I will make it bigger. Sorry about that. Back. 20 How do you respond to Mr. Litvak at 19:54? 21 A. I say I will have your back regardless. Just see 22 what you can do. 23 Q. And what do you understand "I will have your back 24 regardless" mean? 25 A. I mean--I'm sorry. I understand that--by saying GA93 671 1 that, I mean that whether Mr. Litvak will be able to get me 2 bonds at 61 or whether Mr. Litvak will have to pay 61 for 3 these bonds to the seller, and I will have to pay Mr. Litvak 4 something on top of that, I still will want to do the trade. 5 That's what I mean by--that's what I must mean at the time 6 by saying I will have your back regardless. 7 Q. At 19:58:40, Mr. Litvak says, just got off the horn 8 with him, he's going to sell me bonds 4/32 cheap to 61. What 9 do you understand that to mean? 10 A. I understand that Mr. Litvak says that he just got 11 off the phone with the BWIC seller and that the BWIC seller 12 agreed to sell Mr. Litvak bonds at 60-28. 13 Q. And then--14 A. As a difference between--at 61 minus 4 ticks. 15 Q. Thank you. Mr. Litvak continues, so you can have 16 them at 61. What do you understand that to mean? 17 A. So that because the seller of the BWIC--of those 18 bonds on the BWIC is willing to sell the bonds to Mr. Litvak 19 at 60-28 so I can have bonds or Magnetar can buy bonds 20 from Mr. Litvak at 61 just like I asked before by--thus, 21 implicitly paying 4-tick commission to Mr. Litvak. 22 Q. And he continues, if you are feeling the love, 23 anything above that would be great. But like I said, I'm 24 totally cool at 61, too. What do you understand that to 25 mean? GA94 672 1 A. I understand that Mr. Litvak is using figuratively 2--figurative language here saying that if I feel that 3 Mr. Litvak added a lot of value to this transaction, that's 4 what he's referring to as love, then--then it would be 5 great if I pay him a little bit more than 61 to reward his 6 hard work on this BWIC. 7 Q. If you look at the next line, how much do you agree 8 to pay Mr. Litvak? 9 A. So I agree in the next line--at 19:59:10, I agree 10 to bring the commission to 8 ticks here. Is a difference 11 between 60-28 and 61-04, so I'm asking him is 61-04 cool, 12 what was the cover. 13 Q. And Mr. Litvak responds 60-12 cover, and he had a 61 14 reserve, but sold to us--sold us bonds a little back--let 15 me start over. 16 60-12 cover and he had a 61 reserve, but sold us 17 bonds a little back of that to help out. What do you 18 understand that to mean? 19 A. I understand that the cover was 60-12. That 20 originally the seller had--or represented to Mr. Litvak--21 the seller represented to Mr. Litvak that he had 61 reserve, 22 that then the seller changed his mind and sold this bonds a 23 little bit back of his original stated reserve of 61. 24 Q. If the bonds were actually bought at 60-16 and you 25 still paid the 61-04, how many ticks in the commission would GA95 673 1 that be? 2 A. 20. 3 Q. And would you knowingly pay 20 ticks of commission 4 on a trade like this? 5 A. No. 20 sounds too high. I don't recall paying 20 6 ticks commission. 7 Q. Why does 20 sound too high? 8 A. To me, it sounds too high. To me, it sounds like--9 in my recollection working for Magnetar, 20--I don't recall 10 us paying 20. Maybe other people did, but we at Magnetar 11 paid anywhere from 2 to 8. On a regular basis, we paid 12 anywhere from 2 to 8-tick commissions. So to me recalling 13 back to my experience at Magnetar, 20 sounds too high. 14 Again, maybe somebody else didn't think that way, but I can 15 only tell what I think. 16 Q. Would it have been important for you to have known 17 that he actually bought the bond for 60-16? 18 A. Sorry. Can you say that again? 19 Q. Yes. Would it have been important to you to have 20 known that he actually bought the bond for 60-16, not 60-28? 21 A. In this case, yes. 22 Q. Why? 23 A. Again, in this case, reading this, it seems like we 24 using the pay on top structure. And so like I explained 25 before, in this case the overall price that Magnetar would GA96 674 1 pay to Jefferies or to another broker-dealer could be Morgan 2 Stanley or Goldman, is comprised of two parts, if you will. 3 One is the cost as represented by the broker-dealer and as to 4 what broker-dealer pays for the bonds and another part, that 5 on top part that's being negotiated here. And so if you 6 change one of those parts, the whole thing will change. It 7 could be that the on-top number that we seem to have changed 8 in the particular example or it could be that other part of 9 the equation, if you change that then the overall price 10 mathematically will change as well. 11 MS. CHERRY: Can I have a moment, Your Honor? 12 THE COURT: Yes, you may. 13 MS. CHERRY: Your Honor, I would like to bring up 14 Government's Exhibit 112B. It is already in evidence. 15 THE COURT: All right. 16 BY MS. CHERRY: 17 Q. Just going to move to the third page. This is back 18 to the first trade we discussed. 19 A. The FHAM's trade? 20 Q. The FHAM's trade. Thank you. You said, Mr. Lemin, 21 at 19:01--sorry. One second. At 19:01:36, you say 22 definitely do not want to pay more than I have to. In these 23 types of bond negotiations, why do you definitely not want to 24 pay more than what you have to? 25 A. I think it is in general, not just this type of GA97 675 1 transactions that we discussed today. In general, I don't 2 want to pay for the bonds more than I have to because part of 3 my job is to buy bonds as cheap as possible and to sell bonds 4 as expensive as possible. So I guess to make more money for 5 Magnetar investors. That's the objective. 6 MS. CHERRY: Thank you. No more questions, Your 7 Honor. 8 THE COURT: That's a good place to break, ladies and 9 gentlemen. I will excuse you for the evening. See you back 10 tomorrow at 9:30. I will just briefly remind you not to 11 discuss the case with anyone, not to let anyone discuss it 12 with you, not to try to research about it in any way and not 13 to communicate in any way, the old-fashioned or all the 14 electronic ways. Thank you very much, ladies and gentlemen. 15 We'll see you tomorrow morning. 16 Sir, you are excused, but I will see you back at 17 9:30 tomorrow morning. Thank you very much. 18 (In the absence of the jury at 3:45 P.M.) 19 THE COURT: Everybody be seated. Anything we need 20 to take up before we do the charge conference at 4:00? 21 MR. NARDINI: Should we come to chambers at 4:00? 22 THE COURT: No, I think I'm going to do it in the 23 room here, the robing room. So you can just wait in the 24 courtroom, whoever is going to be here, and Alex will come 25 out and get you when Terri and I are set up. Thank you very GA98 697 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 10, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY FOUR OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 GA99 699 1 (In the presence of the jury at 9:32 A.M.) 2 THE COURT: Good morning, ladies and gentlemen. 3 Welcome back. If you'd please be seated. If you recall--4 you may be seated, Mr. Lemin. We're going to continue with 5 the examination of Mr. Lemin, but we're about to the begin 6 the cross-examination by Attorney Butswinkas. 7 I will just remind you, Mr. Lemin, as I do all 8 witnesses, that the oath you took yesterday covers your 9 testimony today. Do you understand that? 10 THE WITNESS: Okay, Your Honor. 11 VLADIMIR LEMIN. 12 having been previously duly sworn, was examined 13 further and testified upon his oath as follows: 14 THE COURT: Whenever you're ready, sir. 15 CROSS-EXAMINATION 16 BY MR. BUTSWINKAS: 17 Q. Sir, good morning. 18 A. Hello. 19 Q. My name is Dane Butswinkas and I represent 20 Mr. Litvak in this case. 21 A. Okay. 22 Q. In academia, we could call you Dr. Lemin. I wanted 23 to start out by figuring out what do you go by. Do you go by 24 Mr. Lemin or Dr. Lemin? 25 A. Mostly by Mr. Lemin. GA100 736 1 you. 2 Q. There's a general perception in the RMBS market that 3 it can be less than truthful at that time? 4 A. What could be less than truthful? 5 Q. Information that is exchanged. 6 A. Sorry. Can you repeat that? 7 Q. Yes, sir. During that period of time when you were 8 at Magnetar, I am just going to focus on 2009 to 2011, there 9 was a general perception in the market that there was a lot 10 of information out there that was less than truthful? 11 A. That some information could be less than truthful, 12 yes. 13 Q. That's one of the reasons why you approach these 14 negotiations with skepticism? 15 A. That would be one of the reasons, yes. 16 MR. BUTSWINKAS: No further questions, Your Honor. 17 THE COURT: Brief redirect. 18 REDIRECT EXAMINATION 19 BY MS. CHERRY: 20 Q. Mr. Lemin, good morning. 21 A. Hello. 22 Q. You were asked about Magnetar's proprietary models. 23 Do you remember that? 24 A. Yes. 25 Q. Mr. Butswinkas just asked you. GA101 697 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 10, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY FOUR OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 GA102 809 1 MR. FRANCIS: Your Honor, the Government calls Joel 2 Wollman. 3 THE COURT: Yes. Mr. Wollman, if you'd come up here 4 to the witness stand area, to my left up here. Keep coming 5 just to where I'm pointing, impolitely pointing, but 6 nonetheless trying to make it clear. When you arrive, if you 7 would remain standing. The clerk will administer an oath to 8 you. 9 JOEL WOLLMAN, 10 having been called as a witness, was first duly sworn and 11 testified on his/her oath as follows: 12 THE WITNESS: I so affirm. 13 THE CLERK: Please state your name, spell your last 14 name, give your city and state of residence. 15 THE WITNESS: Joel Wollman, W-O-L-L-M-A-N. City is 16 Scarsdale, New York. 17 THE COURT: You may be seated, sir, and good 18 afternoon to you. Welcome. 19 Whenever you are ready, Attorney Francis. 20 MR. FRANCIS: Your Honor, may I approach and clean 21 off the witness area? 22 THE COURT: Yes. 23 DIRECT EXAMINATION 24 BY MR. FRANCIS: 25 Q. Are you all set? GA103 826 1 A. So--2 Q.--please. 3 A. A round lot is sort of like the standard size trade 4 size for a particular type of instrument. So in this case, 5 it's a smaller than average size position. 6 Q. So that's a reference to the size of the bond? 7 A. Right. 8 Q. Not like the bond itself? 9 A. Correct. 10 Q. Not something that's weird about CWALT? 11 A. Not necessarily. 12 Q. And then there's the sort of disclaimer information. 13 Then Mr. Litvak responds, yeah, boy, and a lot of e's. And 14 you express interest in this bond. What do you write here? 15 A. I say I would take them from you. The cheaper the 16 better, but if you think 51-12 is the cheapest they come, I 17 will trust you on that. 18 Q. So why is--it actually reads--you skipped a 19 word, which is probably my fault. Obviously, cheaper the 20 better. Why is it obvious that the cheaper is better? 21 A. Right. As I said earlier, the lower you buy the 22 price--the lower you buy the bond, the higher the return 23 would be. 24 Q. Okay. And then please explain, when you write, if 25 you think 51-12 is the cheapest they come, I will trust you GA104 827 1 on that. Why did you trust Mr. Litvak on that? 2 A. Because he represented that to me in the earlier 3 Bloomberg message. 4 Q. Mr. Litvak responds, okay, let me just call the guy 5 and see if I can get them at 51. Be right back. So you have 6 expressed interest in buying it at what price? 7 A. I said I would--well, I said the cheaper the 8 better, but sort of implied that 51-12 would be okay if that 9 is the cheapest they come. 10 Q. And let me know if you want me to go back to 11 Government's Exhibit 91, but is that the deal he had proposed 12 in that first message? 13 A. Yes. My recollection is that he said he thought he 14 could buy them at 51-8 and then sell them to me at 51-12. 15 Q. I don't mean to make this a memory test, but that's 16 what you are referring to here, this--this line? 17 A. Yes. 18 Q. Going back to 92B. Sorry for all of the skipping 19 around. What does Mr. Litvak say he's going to try and buy 20 these bonds at? 21 A. 51. 22 Q. You say, thanks. And Mr. Litvak writes what? 23 A. Winner winner. Bought them at 51, big man. 24 Q. And then he repeats the original face is 31 (sic) 25 million? GA105 828 1 A. 3.1 million. 2 Q. You are right, 3.1 million. What do you say in 3 response to that? 4 A. I say, want to say 51 and 6 ticks, parentheses, you 5 just earned yourself 2 extra ticks. 6 Q. Okay. Why did Mr. Litvak--or how did Mr. Litvak 7 earn 2 extra ticks? 8 A. By being able to secure the bonds cheaper than he 9 had originally thought. 10 Q. Okay. And at this point, what do you understand was 11 the price that Jefferies is paying for the bonds? 12 A. That they are paying 51--they are paying the 13 seller 51, and then selling to me at 51-6. 14 Q. Why do you think that? 15 A. He says, I bought them at 51, big man. 16 Q. And you believed him? 17 A. Yes. 18 Q. So what did you understand was the amount of money 19 that Jefferies was going to make on this trade? 20 A. Well, 6 ticks, the--on the current face. 21 Q. What time are you--he responds, sounds good to me. 22 I will have Shirley Prada send over a ticket. So what time 23 is this a done deal? 24 A. So 19:23:19, he's agreed to the terms, and I three 25 seconds later just confirm with a thanks. But effectively, GA106 829 1 at the 19:23:19:10. 2 Q. So if we leave the seconds aside, it is at 19:23, 3 which if we did that adjustment, it is 3:23 in the afternoon? 4 A. Yes. 5 Q. And you recall the Government's Exhibit 91 when he 6 first raised the CWALT, that was 19:10. So how much time has 7 elapsed? 8 A. Approximately 13 minutes. 9 Q. So in this trade, what did you understand your 10 relationship was with Mr. Litvak? 11 A. My relationship with Mr. Litvak, he was my broker in 12 this trade and he was facilitating a trade between me and the 13 seller. 14 Q. When you say he's your broker, just I want to be 15 clear here. The jury has heard a couple different terms. Is 16 that synonymous in your mind with saying he's your agent? 17 A. Yes. 18 Q. Explain to the jury why you thought he was your 19 broker or your agent? 20 A. Sure. Because--so these weren't bonds that he 21 owned. He was in touch with the seller, and his role in this 22 transaction was to arrange effectively a transaction between 23 the seller and me, the buyer. And so he was acting on both 24 of our behalfs in this transaction, but both of ours being 25 the seller and my behalf. GA107 830 1 Q. At the time, would it have mattered to you if you 2 had known that Jefferies and Mr. Litvak actually were buying 3 the bonds at 50 and a half or 50-16 ticks and not 51? 4 A. Yes. 5 Q. Please explain why. 6 A. Because I had agreed to pay him a 6-tick commission 7 for arranging the transaction and/or for facilitating the 8 transaction. If it was 50 and a half, that would have been a 9 22-tick commission. 10 Q. What's wrong with 22 ticks instead of 6 ticks? 11 A. That wasn't the standard. Well, first, it was 12 explicitly agreed that it was 6 ticks. But then on top of 13 that, it is more than the standard commission for a trade of 14 this type. 15 MR. BUTSWINKAS: Gotcha. Excuse me. We need to ask 16 for an instruction on agency. 17 THE COURT: I will have to take that up at the 18 break. I don't know what instruction or why. 19 MR. BUTSWINKAS: Thank you, Your Honor. 20 THE COURT: So take it up at the break. I don't 21 know if you are in the middle of your answer, sir. If you 22 were you can continue. Otherwise, I would ask another 23 question. 24 THE WITNESS: I think I concluded. 25 BY MR. FRANCIS: GA108 831 1 Q. So sort of cut off my thought. I want to make sure 2 I get this. You said it was more than the standard 3 commission, I think; is that right? 4 A. Correct. 5 Q. What was the standard commission? 6 A. It could vary, but somewhere in the 4 to 8 tick kind 7 of range, but certainly in this case it was explicitly agreed 8 as 6 ticks, which was 2 ticks more than was originally 9 offered so certainly 22 ticks in excess of all of those. 10 Q. Okay. So if you had known that on this 13-minute 11 trade that Mr. Litvak was making--or Jefferies was making 12 22 ticks, would it have been important to know that? 13 A. I missed the last part. Would it have been--14 Q. Would it have been important? 15 A. Yes. 16 Q. Why? 17 A. Because that's not the deal that we had agreed 18 upon. 19 Q. What was the equity--what would have been the 20 effect for QVT if Mr. Litvak was making 22 ticks instead of 21 6? 22 A. Well, then QVT would have paid 16 more ticks than--23 that we had agreed to pay. 24 Q. To be clear, is this QVT's money or someone else's 25 money? GA109 858 1 Q. Then you have another question to Mr. Litvak. 2 What's that? 3 A. It is, what is the cheapest you would be willing--4 willing misspelled--to sell to me? 5 Q. Some time goes by so you ask--well, you ask a 6 question. You there? Then Mr. Litvak appears to answer your 7 question. What does he say? 8 A. I would work for 2/32 or 2 ticks. 9 Q. And is that consistent with working skinnier or 10 working super skinny working for 2 ticks? 11 A. Yeah, 2 ticks is not working for as much. 12 Q. So why are you asking Mr. Litvak what is the 13 cheapest he would be willing to sell to you? 14 A. Again, I don't know. I guess it is because I wasn't 15 sure what he meant by willing to work super skinny in terms 16 how that relates to an actual number. 17 Q. And do you accept this deal? 18 A. It appears so, yes. 19 Q. So let's review here. What's the price that you're 20 paying Jefferies for this bond? 21 A. So it would be 57 and 18 ticks, which is 57 and 16 22 plus the 2 additional ticks. 23 Q. And the 57-16, who is paying that? 24 A. Jesse is paying that. 25 Q. To? GA110 859 1 A. The seller. 2 Q. Why do you think that Mr. Litvak is paying 57 and a 3 half to the seller? 4 A. Because he says that he was firm at 57-16, that 5 that's the lowest he's willing to go. 6 Q. So would it have mattered to you at the time if you 7 had known that Mr. Litvak actually bought the bond at 56 and 8 a half instead of 57 and a half? 9 A. Yes. 10 Q. Please explain why. 11 A. Why is because my 2-tick commission just became 34 12 ticks. 13 Q. What's wrong with paying 34 ticks? 14 A. That's a lot more than 2 ticks. 15 Q. What was your understanding of Mr. Litvak's 16 relationship to you in this trade? 17 A. He relationship to me, he was my broker in the 18 trade. 19 Q. Just like the last one we saw? 20 A. He was acting as my agent. 21 Q. He's--intermediary was another word you used? 22 A. Facilitating the trade, yes. 23 Q. How did you come to have that understanding? 24 A. He said that he had a seller that he was--that he 25 had already traded some of these bonds for the seller, that GA111 860 1 we were negotiating about commission. It had all the 2 characteristics of that type of trade. 3 Q. If you had known--before you said 34 was more than 4--34 ticks was more than 2. If you had known he was making 5 34 ticks, would that have been something that you wanted to 6 know? 7 A. Certainly. 8 Q. Why? What would you have done with that 9 information? 10 A. I would have used it to get the commission back to 2 11 ticks. 12 Q. So if I tell you that the difference between 34 13 ticks and 2 ticks is more than $179,000, does that change 14 your answer? 15 A. Does it change my answer? 16 Q. Yes. Does it change your answer? 17 A. I think it is consistent with my answer. 18 Q. Why doesn't that change your answer? It's $179,000. 19 A. Right, that I just overpaid, you're saying. 20 Q. I don't want to--21 A. I want to make sure I'm not misunderstanding your 22 question. 23 Q. Sure. So if the difference 34 ticks on one hand and 24 2 ticks on the other is $179,000, it is $179,500 25 approximately, does that still matter to you? GA112 861 1 A. Yes. 2 Q. Is that amount of money significant? 3 A. Sure. 4 Q. Why? 5 A. That's $179,000 of extra commission I just paid. 6 Q. Whose money was that, that $179,000? Who paid it? 7 A. Ultimately, our investors paid for that. 8 MR. FRANCIS: I would like to move on to another 9 trade, Your Honor, and offer Government's Exhibit 422C? 10 THE COURT: Any objection to 422C? 11 MR. BUTSWINKAS: No, Your Honor. 12 THE COURT: All right. 422C is marked as a full 13 exhibit and may be published. 14 BY MR. FRANCIS: 15 Q. Mr. Wollman, this is a Bloomberg chat. Who is in 16 this chat? 17 A. Me, Jesse, Kevin and Beth. 18 Q. Okay. The jury has heard about you obviously and 19 Jesse obviously. They heard about Beth Starr. Who is Kevin 20 Lamoin? 21 A. I'm not entirely sure. I forgot exactly what his 22 role was. 23 Q. Where was he employed? 24 A. I believe at Jefferies, but I'm not sure. 25 Q. I will go to the second page of this document. GA113 875 1 A. So I'm not sure exact. My--my interpretation 2 would be that he would show them to me first before he tries 3 to show them to anybody else. 4 Q. Okay. At 17:27:15, Mr. Litvak writes I'm buying 5 bonds at 25-08 from him, 25 and 8 ticks. So what price do 6 you understand Jefferies is paying for this CWALT bond? 7 A. 25-08. 8 Q. And what's your source of information for that 9 brief? 10 A. He says that. 11 Q. Do you have any alternative sources of information 12 for that? 13 A. About where he bought it? 14 Q. At the time--back in January 6, 2011, do you have 15 any other way you can figure out where Mr. Litvak bought it? 16 A. Not that I can think of. 17 Q. Mr. Litvak says sold 25 million at 25-16. Have 25 18 and a little bit million left for you, 25.002 million. And 19 then what's your question? 20 A. So how cheap can I buy? 21 Q. And why are you asking that? 22 A. Sorry. Why am I asking that? 23 Q. Why do you understand you are asking how cheap you 24 can buy it? 25 A. Can you say that again? GA114 876 1 Q. Why do you understand that you are asking the 2 question how cheap can I buy? 3 A. That's what it says. How cheap can I buy? 4 Q. I'm sorry. Why would you ask Jesse that question, 5 how cheap can I buy? 6 A. Right. So I know that he bought them at 25-08, and 7 this is the part where I'm figuring out what commission to 8 pay him. 9 Q. What's Mr. Litvak say in response? 10 A. I will leave that up to you, big man. You know me, 11 I'm easy. 12 Q. Then does he have a proposal? 13 A. 25-12, so 25 and 12 ticks. 14 Q. How much over his purchase price is that? 15 A. 4 ticks. 16 Q. You write, if you're okay with that. I don't want 17 you to think I'm too cheap. Too is capitalized. But I 18 appreciate you working with me. And what's Mr. Litvak say in 19 response? 20 A. It is all good, bro. 21 Q. You have a question about that.002. So when does 22 the deal get finalized? 23 A. Well, so--so I agree to--sorry about that. I 24 agree to buy at 25-12, that size at 18:05:19. And then Jesse 25 agrees that it is done seven seconds later. GA115 877 1 Q. And when you write--or when you and a 2 broker-dealer, someone says done, what does that signify? 3 A. That we're agreed on the trade. 4 Q. At the time, would it have mattered to you if 5 Jefferies and Mr. Litvak actually purchased these bonds, this 6 CWALT bond at 24 and 28 ticks, not 25 and 8 ticks? 7 A. Yes. 8 Q. Why would that matter? 9 A. Because I would have--I overpaid 10 commission-wise. 11 Q. And on this trade, what did you understand 12 Mr. Litvak's role with respect to you was? 13 A. He was my broker agent facilitator. 14 Q. How--if you had known at the time that Mr. Litvak 15 was--and Jefferies was making 16 ticks, not the 4 ticks you 16 agreed on, would that have been important to you? 17 A. Yes. 18 Q. Please explain why. 19 A. Because I entered into this transaction under the 20 assumption that I was paying 4 ticks in commission, and 16 21 ticks is more than 4 ticks. 22 Q. Why does it make a difference that--the 12-tick 23 difference, why is 12 ticks significant? 24 A. I'm sorry, why is--I missed the last part of that. 25 Q. Why does 12 ticks matter? I said significant, but GA116 878 1 matter. 2 A. Because that's more than we had agreed to. 3 Q. Who--where did those 12 ticks come from? That 4 12-tick difference between 16 and 4? 5 A. We paid--our investors paid for that. 6 MR. FRANCIS: May I have one moment, Your Honor? 7 THE COURT: Yes. 8 BY MR. FRANCIS: 9 Q. One final question. Did you--did Mr. Litvak--10 step away from the trades. Talk generally about your 11 relationship with Mr. Litvak. Did Mr. Litvak have--did he 12 send out something on a regular basis in the market? 13 A. He sent out bid lists. He sent out bid lists, offer 14 sheets. I think at some point he had a weekly commentary. 15 I'm not sure if--that's my recollection. I don't know if 16 there's anything else. 17 Q. Tell us about the weekly commentary. What was that 18 about? 19 A. What was that about? 20 Q. Was it current events? What was it about? What was 21 the topic of the commentary? 22 A. It was--it was often about what was going on in 23 the market. Activity. Sometimes sentiment, sometime 24 commentary on the Broncos, or Nuggets. But usually some or 25 all of those things. GA117 879 1 Q. Did you--was that the sort of thing you would 2 read? 3 A. I think I would read it regularly. I don't know 4 that I caught them all, but I think I would read it pretty 5 regularly. 6 Q. So why would you read that regularly? 7 A. It was usually funny and it was also good commentary 8 on what was going on in the market. 9 Q. When you say "market," which market? 10 A. The RMBS market principally. 11 MR. FRANCIS: No further questions, Your Honor. 12 THE COURT: Cross-examination. 13 MR. BUTSWINKAS: Yes. Thank you, Your Honor. May 14 I proceed, Your Honor? 15 THE COURT: You may. 16 CROSS-EXAMINATION 17 BY MR. BUTSWINKAS: 18 Q. Dane Butswinkas on behalf of Mr. Litvak. There's a 19 big difference between a principal-to-principal negotiations 20 and a principal agent relationship? Do you agree with that? 21 A. Principal-to-principal? Yes. 22 Q. In principal-to-principal negotiations, the parties 23 sit across the table from one another, correct? 24 A. I'm not sure what that means. 25 Q. In a principal-to-principal negotiation, the GA118 880 1 parties negotiate at arm's length? 2 A. I'm struggling with your terminology. 3 Q. Do you understand the word "principal"? You have 4 heard that, right? 5 A. Yes. So someone who is investing their capital. 6 Q. Yes. And if they are buying a bond from someone 7 across the table, the other party is a principal also; is 8 that right? 9 A. Principal-to-principal, yeah. Sounds right. 10 Q. And in that negotiation, they negotiate across the 11 table at arm's length? 12 A. Sorry. Just the across the table at arm's length 13 part is the part that--14 Q. Have you heard the expression "at arm's length"? 15 A. Yes. 16 Q. They negotiate at arm's length? 17 A. Yes. I would say that. 18 Q. In a self-interested way? 19 A. Self-interested way. Yes. 20 Q. Looking out for their own interests? 21 A. I think that's what self-interested mean. 22 Q. I want to make sure we have the same thing in mind. 23 It sounds like we do, correct? 24 A. I think so, yes. 25 Q. And in that setting, one principal is not obligated GA119 881 1 to disclose its internal profit margin to the other principal 2 it is negotiating against; isn't that right? 3 A. Yes. 4 Q. That's different than the principal/agent 5 relationship where you're on the same side of the table, 6 right? 7 A. Yes. 8 Q. I want to talk to you about the LXS bond. You were 9 asked some questions by the Government about the LXS bond. 10 Do you recall generally being examined about that trade? 11 A. The second bond? 12 Q. Yes. 13 A. Yes. 14 Q. Do you remember whether the Government asked you any 15 questions about the conversation that you were having with a 16 gentleman named Mr. Steffa about your negotiations with 17 Jesse? 18 A. I don't recall any such questions. 19 Q. You don't recall a single question about that, do 20 you, sir? 21 MR. FRANCIS: Objection. Asked and answered. 22 BY MR. BUTSWINKAS: 23 Q. You discussed your potential purchase of the LXS 24 bond from Jesse with another trader named Mr. Steffa; isn't 25 that right? GA120 1121 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 12, 2017 4 Government)9:28 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY SIX OF TRIAL 10 (Including Sealed Portion) 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND jury OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 GA121 1211 1 THE COURT: Yes, sir, that's fine. Thank you. 2 PHILLIP BURNAMAN, 3 having been called as a witness, was first duly sworn and 4 testified on his/her oath as follows: 5 THE WITNESS: I do. 6 THE CLERK: Please state your name, spell your last 7 name, and give us your city and state of employment. 8 THE WITNESS: Phillip Burnaman, B-U-R-N-A-M-A-N. 9 New York, New York. 10 THE COURT: You may be seated, Mr. Burnaman, and 11 good morning to you. 12 And whenever you are ready, you may proceed when 13 he's ready. 14 THE WITNESS: Hang on one second. I need my pillow. 15 DIRECT EXAMINATION 16 BY MR. HARBER: 17 Q. Good morning, Mr. Burnaman. Will you introduce 18 yourself to the jury? 19 A. Sure. My name is Phillip Burnaman. I've been known 20 as Buck my entire life. I'm 57. I live in Wilton, 21 Connecticut, not far from here. I have four kids and I'm 22 married. 23 Q. And what is your educational background? 24 A. I grew up in a small town in western Pennsylvania. 25 Went to Regional High School there. Finished high school in GA122 1245 1 develop relationships that may be beneficial in terms of 2 getting information. 3 Q. Do you have an opinion about the amount of weight 4 that reasonable investors place on these conversations? 5 A. Sure. I do. And it is developed over 30 years. 6 Generally, when I was talking to my competitors, my 7 first suspicion was they were--generally they were bragging 8 about what they were doing. And I'm not sure I always 9 believed all the good things that were happening to their 10 firm, particularly when things were tough at my firm or if I 11 thought the market was difficult. 12 When I talked the counterparties, broker-dealers, I 13 always remembered that they made money transacting with me, 14 that their motivation was to do a trade and make a profit. 15 And they understood that my motivation was to do a trade and 16 make a profit, too. We were both in the profit-making 17 business, but they needed to transact with me to make money. 18 Q. As a result of that, what kinds of--what kind of 19 weight do reasonable investors place on this type of 20 information? 21 A. The weight that a reasonable investor would put on 22 information that came from either a competitor or a 23 counterparty would really depend, in my experience, on 24 whether you can verify that information being true. 25 If you can--if you can confirm, to your own GA123 1246 1 satisfaction, that it is true, then it's good information. 2 If you can't confirm that it is true, then you discount that 3 information. You don't know if it is true or not. It may be 4 false. 5 Q. How would a reasonable investor--what are the 6 kinds of things that a reasonable investor can do in trying 7 to verify this information? 8 A. As we talked about a little earlier, if I own 9 something and I know where it trades, then I can verify 10 things right away. 11 If I don't own it or if I don't have any ability to 12 find information from an exchange or a reputable source, I 13 try to verify information by calling someone else in the 14 industry, would be one way to do it. Sometimes I do searches 15 of the news, depending on what type of information you are 16 talking about, or I check with competitors. I had a friendly 17 relationship with some of my competitors in the industry. I 18 wasn't adverse to calling them up from time to time. 19 Q. What would happen if you couldn't verify a piece of 20 information you had? 21 A. If I couldn't verify it, then I'm not sure that I 22 would put a lot of faith in it. I wouldn't rely on it as 23 much as if I could verify it. 24 Q. Does that mean you expect everything you heard to be 25 false? GA124 1247 1 A. No, I didn't expect everything I heard to be false. 2 I just knew that I'm the captain of my ship. I'm responsible 3 for what I do. If I'm going to make a decision based on some 4 information, because I have that responsibility, I want to 5 make sure that I know it is good information. 6 Q. Now I want to talk specifically about the context of 7 negotiating a transaction between investors and 8 broker-dealers like the ones we have been looking at in this 9 case. 10 Can you explain how your opinion about unverified 11 information applies in that context? 12 A. Sure. We are talking specifically about 13 transactions with counterparties like broker-dealers? 14 Q. That's right. 15 A. Well, when I was trying to acquire a security, I 16 generally always kept in mind that my counterparty, the 17 broker-dealer I was working with, if he was the seller, he 18 wanted to get as high a price as possible for the security 19 because he wanted to make money for his firm. He was my 20 counterparty, but, to a degree, we had an adversarial 21 relationship. He might want to be friendly with me, but his 22 motivation was different than mine. 23 Q. What if a broker-dealer made a representation about 24 the price they paid for a bond in one of those conversations? 25 Do you consider that unverified information, as well? GA125 1248 1 A. Well, if I wanted to rely on it, I would try to 2 verify it. And we discussed a minute ago things I might do. 3 If I couldn't verify it, I wouldn't necessarily rely on it. 4 Q. Is acquisition cost or the price a dealer paid for a 5 bond, is that information that broker-dealers have to 6 disclose in these transactions? 7 A. No, they do not. Because the transactions in this 8 marketplace, the RMBS marketplace are principal to principal. 9 It is an over-the-counter market. Principal to principal 10 means I know that he's acting for himself. He knows that I'm 11 acting for myself. So we're both big boys and--or big 12 girls if it is a woman. 13 And therefore, he doesn't have to tell me what he's 14 doing, and I don't have to tell him what I'm doing. That's 15 my business. 16 Q. What if a dealer were to say, I bought this bond at 17 50. How would reasonable RMBS investors understand that 18 statement or view it, in your opinion? 19 A. Well, if somebody says, well, I bought this bond at 20 50 and he knows that that's something that I want to buy, 21 pretty much the only thing I can take from that that I know 22 to be true is that he would like to get paid something more 23 than 50 for me to buy it. 24 So if I want to buy it, probably have to pay more 25 than that, according to his view of the world. Doesn't mean GA126 1249 1 that I agree with his view of the world, but that's what he 2 thinks or she thinks. 3 Q. Is there anything else that a reasonable investor 4 would take from those types of statements, in your view? 5 A. As a trader, all I take from that is that if he 6 wants me to buy the bond or if he wants to offer me the bond, 7 he's going to offer it at a price that's 50--that's more 8 than 50. 9 Q. Do dealers have to tell investors in principal 10 transactions in the RMBS industry how much profit they are 11 making on a trade? 12 A. No. 13 Q. Is that information they usually provide, in your 14 experience? 15 A. No. 16 Q. How does a reasonable investor make investment 17 decisions without that information? 18 A. Well, we went through the model. A reasonable 19 investor in an institutional market like the RMBS market is 20 first and foremost going to rely on their credit work, the 21 analysis that they did. The model that tells them what price 22 represents good value. That's going to be the key 23 fundamental analysis that an investor does that's going to 24 enable him to say, this represents good value. 25 Beyond that, they are going to use their upmost best GA127 1250 1 efforts to find out all the other information they can. That 2 involves talking, as I said before, you would talk to other 3 counterparties, you might talk to other broker-dealers, you 4 might talk to your competitors to try to understand what else 5 is going on in the market. What's called market color, 6 general speaking. 7 Q. Does your view of how that investment process works 8 change if the broker-dealers does make a representation like, 9 I will work for 6 ticks? 10 A. No. You know, the work for--broker-dealers made a 11 lot of noise about what they were working for and, you know, 12 they are doing this, they are doing that. And generally, if 13 they said they were working for me, I suspected they might be 14 working on me rather than for me to try get me to transact 15 because they make money when we do a trade. 16 Q. Now, we have heard in this case about three types of 17 trades in the RMBS market, order trades, inventory trades 18 and BWICs. Are you familiar with those? 19 A. I am. 20 Q. Does your opinion--the opinions you just gave on 21 verified information change depending on what context the 22 trade is? 23 A. No, because all those trades are still 24 principal-to-principal trades. 25 Q. What about statements from a broker-dealer about GA128 1251 1 whether or not they already own the bond, are those 2 statements that will affect how much an investor will pay for 3 the bond? 4 A. They don't. 5 Q. Why not? 6 A. Well in part, because I couldn't tell for sure 7 whether they actually did own the bond or not. Sometimes 8 people would say that, but they had a seller and they were 9 confident they could bring the bond out. In other cases, it 10 didn't matter to me who owned the bond. Somebody owned the 11 bond--if I was buying it in the secondary market, it was 12 already owned by somebody. I didn't really care who owned 13 it. What I cared about was what price was I going to buy it 14 at if I was a buyer. 15 Q. Now, in forming your opinions in this case, did you 16 look at all of the specific chats that Mr. Litvak had with 17 ihs counterparties? 18 A. No, I did not. 19 Q. How were you able to form your opinions without 20 doing that? 21 A. Because I started in the industry--I started in 22 the mortgage finance industry in 1983. I have been in and 23 around it my entire career. It hasn't changed that much. 24 We had BWICs and inventory trades and agency trades and all 25 kinds of trades my entire career. GA129 1252 1 I had discussions with broker-dealers, thousands of 2 discussions. I oversaw traders for many years at ING. And 3 the discourse that happens, whether it is in the chat room or 4 on the telephone or in e-mails is pretty similar then and 5 now. 6 Q. Another term we heave heard in this trial is best 7 execution. Are you familiar with that context? 8 A. I am familiar with the term best execution. I know 9 it in a different contexts. 10 Q. Can you explain how you're familiar with that? 11 A. Sure. When I started on the floor of the New York 12 Stock Exchange, they teach you about the concept of best 13 execution. Best execution in an auction market, like the 14 New York Stock Exchange where stocks trade, means that when 15 you get an order from your customer to buy a stock you have 16 got to go get the best price available. If the best price 17 available is $100 a share, you can't go to your cousin Joe 18 and buy it at $101 a share if he's out there trying to sell 19 it, too. You have to get the best price for your client. 20 That's an open outcry market where everybody can see 21 everybody else. 22 Q. Now, do you have an opinion about whether or not 23 Mr. Litvak owed his counterparties in these transactions the 24 duty of best execution? 25 A. I know of no duty of best execution in a GA130 1253 1 principal-to-principal market. It's--it's--in an 2 over-the-counter market where it's principal-to-principal, 3 there's no concept of best execution, as far as I can--I 4 know. 5 Q. To the extent one of the investors in this case owed 6 a duty of best execution to their own--the investors in 7 their own fund, do you have an opinion about whether or not 8 price is the only factor that matters in assessing best 9 execution? 10 A. No. Actually, on the--on the stock exchange, 11 price is not the only issue for best execution. I just 12 described it that way because it is easy to understand. 13 Price and volume and timing are all aspects of best 14 execution. And the stock exchange, if there's 100 shares 15 offered at five bucks and there's 200,000 shares offered at 16 $5.01 and you are supposed to go buy 200,000 shares, you 17 don't have to buy the 100 that's at five bucks. You can go 18 buy the 200,000 shares that's at 5.01. That's best exclusion 19 because your order was big and you needed to do it. You also 20 needed to do it timely. You can't wait until, you know, next 21 Tuesday to fill the order. You have to do it in a reasonable 22 period of time. 23 Q. Now, you have been talking about best execution of 24 the--like the stock exchange context. Do those opinions 25 also apply in the bond--the RMBS bond market as well? GA131 1254 1 A. I think that when you are talking about best 2 execution, standard between an institutional investor and his 3 client--and I'm--I work at a hedge fund, so I understand 4 this. We don't have that in our contract with our investors, 5 but we have fiduciary responsibility to our investors. We're 6 supposed to do the right thing for them. It means--as far 7 as I understand it and as a layperson, not a lawyer, best 8 execution between a money manager and its client means that 9 you will go try to get them a good price, that you won't go 10 to your brother-in-law to buy it because he's your 11 brother-in-law, that you will seek the best price and you'll 12 do it timely and you'll try to get the amount of the 13 investment that you are targeting. 14 Q. Now, does that mean if there's only one offer for a 15 bond in a day, that it means getting the absolute lowest 16 price possible? 17 A. As far as I understand it, if there's only one 18 offer, that's going to be the best offer. There's no 19 competing offers out there, so it is the best one 20 available. 21 Q. Would an investor ever know if they have ever gotten 22 the absolute best price for a bond? 23 A. No. You never know if you got the absolute best 24 price for a bond. You never know about absolute about 25 anything. GA132 918 1 UNITED STATES DISTRICT COURT. 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)January 11, 2017 4 Government)9:27 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY FIVE OF TRIAL 10 11 B E F O R E: THE HONORABLE JANET C. HALL, U.S.D.J. 12 AND JURY OF 14 13 A P P E A R A N C E S: 14 For The Government: Jonathan Francis William Nardini 15 Heather Cherry U.S. Attorney's Office 16 157 Church St., 23rd floor New Haven, CT 06510 17 18 For the Defendant: Dane Butswinkas C. J. Mahoney 19 Adam Harber Katherine Trefz 20 Elise Baumgarten Krystal Commons 21 Williams & Connolly 725 12th St., N.W. 22 Washington, DC 20005-5901 23 Michael Chase Shipman & Goodwin 24 One Constitution Plaza Hartford, CT 06103 25 GA133 1088 1 LP, new. 2 Q. You see the bids wanted repeated in the text of the 3 message? 4 A. Yes. 5 Q. Why don't you just read the highlighted language 6 that I have just highlighted? 7 A. You have just received a Bloomberg bid/offers wanted 8 list from--9 Q. C. Creed? 10 A. C. Creed, yes. 11 Q. Then what reads in the next portion of the sentence 12 that starts "please"? 13 A. Please bid the following bond at 3:00 p.m. EDT using 14 the BBG BWIC system. 15 Q. And is BBG a common abbreviation for Bloomberg? 16 A. Yes, it is. 17 Q. We already heard this testimony, what does BWIC 18 stand for, that acronym? 19 A. Bids wanted in competition. 20 Q. What's the particular bond that's going to be 21 involved in this upcoming BWIC or auction? 22 A. The SARM 2005-21 7A1 bond. 23 Q. So now let's take a look at Government's Exhibit 24 43B. And we're going to see up at the top first of all, this 25 is an e-mail exchange between which two people? GA134 1089 1 A. Brian Norris of Invesco and Jesse Litvak. 2 Q. Let's work our way up from the bottom. So down the 3 bottom, Mr. Norris says at 3:15 in the afternoon, what does 4 he say that they can bid on that SARM? 5 A. We can bid 79-24 on the SARM 05-21 7A1. 6 Q. After Mr. Norris gives his bid of 79-24, what does 7 Mr. Litvak respond? 8 A. He responds, using, BRB. 9 Q. We go up a little higher. And after Mr. Norris 10 replies, thanks, got some room, too. Why don't you read how 11 Mr. Litvak replies? 12 A. He replies, winner bro. He had two other guys that 13 were at 79 and trying to improve but he just sold them to us. 14 I bid your level. So we'll work for whatever you want, big 15 man. 16 Q. After Mr. Norris responds, wow, that was fast. Nice 17 work. 6 ticks, cool, 79-30 to me. How does Mr. Litvak, 18 then, respond? 19 A. Your timing was perfect. 3:00 p.m. BWIC and he's 20 good about trading things fast. So we got in there right at 21 the right time. Good teamwork. 6/32 is great. Thanks, 22 BN. 23 MR. NARDINI: Your honor, at this point, I would 24 like to offer Government's demonstrative Exhibit 521. 25 THE COURT: Any objection? GA135 1090 1 MR. BUTSWINKAS: No objection. 2 THE COURT: 521 will be received for identification 3 only as a demonstrative exhibit. 4 BY MR. NARDINI: 5 Q. Agent O'Connor, moving down that list to the 6 transaction in Count Four where Invesco buys the SARM bond on 7 July 1, 2010, what was the bid--or what was the price that 8 Mr. Norris told Mr. Litvak he was bidding at? 9 A. 79-24. 10 Q. And what did Mr. Litvak say about what he had done 11 with the bid? 12 A. He said, I bid your level. 13 Q. And how do you know that from the evidence before 14 the jury? 15 A. From Government's Exhibit 43B, which was the 16 communication we just looked at between Mr. Litvak and 17 Mr. Norris. 18 Q. What was the price that Jefferies actually paid for 19 these bonds? 20 A. 79-16 ticks. 21 Q. And what's the difference between the price that Mr. 22 Litvak told Mr. Norris he had bid on the bonds and the price 23 that Jefferies actually paid for the bonds? 24 A. 8 ticks. 25 Q. If you multiply 8 ticks by the current face value in GA136 1091 1 Exhibit 40B, what's the dollar value of that 8 tick 2 difference? 3 A. $73,018.53. 4 MR. NARDINI: Your Honor, I'm now going to turn to 5 another transaction in Count Five. I would like to offer 6 Government Exhibits 52B, 54A, 54B and 57. 7 THE COURT: Any objection? 8 MR. BUTSWINKAS: No objection, Your Honor. 9 THE COURT: Government's Exhibit 52B, 54A, 54B and 10 57 are full exhibits. 11 MR. NARDINI: Thank you, Your Honor. 12 BY MR. NARDINI: 13 Q. Agent O'Connor, let's start at the top with 14 Government's Exhibit 52B. This is in super small print, so 15 we're going to enlarge that. Can folks see that? It is 16 actually the best I can do. So if you can't, it is a 17 problem. 18 And this is a message from Mr. Litvak to whom. 19 A. Beth Starr. 20 Q. And who else? 21 A. Shirley Prada. 22 Q. Where do both of them work? 23 A. Jefferies. 24 Q. To orient ourselves, what's the date? 25 A. December 14, 2009. GA137 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 1 of 28 UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT UNITED STATES OF AMERICA:: CRIMINAL CASE NO. v.: 3:13–CR–19 (JCH): JESSE C. LITVAK,: APRIL 17, 2017 Defendant.: RULING RE: MOTION FOR JUDGMENT OF ACQUITTAL OR, IN THE ALTERNATIVE, A NEW TRIAL (DOC. NO. 516) I. INTRODUCTION Approximately two weeks after receiving the case to deliberate,1 a federal jury convicted defendant Jesse Litvak ("Litvak") of one count of securities fraud, while acquitting him of nine counts. See Verdict Form (Doc. No. 510) at 1–2. Litvak now moves for a judgment of acquittal, pursuant to Federal Rule of Criminal Procedure 29 or, in the alternative, for a new trial. See generally Def. Jesse Litvak’s Mem. in Supp. of his Mot. for J. of Acquittal or, in Alternative, New Trial ("Motion") (Doc. No. 516).2 The government has opposed Litvak’s Motion, see generally Govt.’s Mem. in Opp’n to Def.’s Mot. for J. of Acquittal & for New Trial ("Opp’n" or "Opposition") (Doc. No. 520), and 1 The jury deliberated over a two-week period, from January 13 through January 27, 2017. Its deliberations were held on seven days: January 13, 18, 20, 23, 25, 26, and 27. The jury did not deliberate on the following dates: January 14 (weekend), 15 (weekend), 16 (federal holiday), 17 (juror injured in car accident), 19 (no court), 21 (weekend), 22 (weekend), and 24 (juror illness). An alternate juror died over the holiday weekend immediately following the Friday on which the jury was charged. There has to date been no objection to the manner in which the court addressed that situation. 2 Though Litvak’s filing at Docket Number 516 is styled a "Memorandum in Support," see Motion at 1, there appears to be no separate Motion in support of which the Memorandum is offered. In the absence of any objection to doing so, the court will treat the filing as both Motion and Memorandum in Support. GA138 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 2 of 28 Litvak replied in a timely manner, see generally Def. Jesse Litvak’s Reply in Supp. of his Mot. for J. of Acquittal or, in Alternative, New Trial ("Reply") (Doc. No. 521). For the reasons set forth below, Litvak’s Motion (Doc. No. 516) is DENIED. II. BACKGROUND On January 25, 2013, a federal grand jury returned a sixteen-count indictment against Litvak, charging him with the following crimes: (1) eleven counts of securities fraud, in violation of sections 78j(b) and 78ff of title 15 of the United States Code, see Indictment (Doc. No. 1) ¶¶ 27–55 (Counts One–Eleven); (2) one count of fraud against the United States, in violation of section 1031 of title 18 of the United States Code, see id. ¶¶ 56–58 (Count Twelve); and (3) four counts of false statements to the government, in violation of section 1001 of title 18 of the United States Code, see id. ¶¶ 59–60 (Counts Thirteen–Sixteen). The Indictment alleged that Litvak, a licensed securities broker working at Jefferies & Co., Inc. ("Jefferies"), defrauded various counterparties in the purchase and sale of certain residential mortgage-backed securities ("RMBS"). See id. ¶¶ 1, 28. Specifically, the Indictment alleged that Litvak misrepresented to RMBS bond buyers the price at which Jefferies had purchased RMBS bonds, see id. ¶¶ 33(a), 36, and to sellers the price at which it had negotiated to sell RMBS bonds, see id. ¶ 33(b). Furthermore, according to the Indictment, Litvak sometimes falsely claimed to be effectuating trades between two non-Jefferies counterparties, when Jefferies in fact already owned the RMBS bond and was selling it from its own inventory. See id. ¶ 47. The Indictment provides a helpful summary of the ways in which the RMBS bond market operates: RMBS bonds typically are sold in three ways: GA139 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 3 of 28 a. from a broker-dealer’s inventory, in which the broker-dealer like Jefferies is selling a bond that it has owned for a period of time; b. as an order, in which the seller commissions the broker-dealer to seek a buyer, or the buyer commissions the broker-dealer to seek a seller, for a particular bond; or c. as part of a "bid list" or "BWIC" ("bids wanted in competition"), in which the seller circulates a list of specific bonds it is interested in selling so that the broker-dealer may seek a potential buyer willing to negotiate terms for the trade. Indictment ¶ 16. These concise, general definitions—of "inventory," "order," and "bid list" or "BWIC" trades—were undisputed and, in any event, supported by evidence offered at trial. See, e.g., Trial Tr. at 159:11–161:4 (testimony of Michael Canter). On February 17, 2014, the government moved to dismiss Count Seven, see Mot. to Dismiss Count Seven (Doc. No. 197) at 1, and the court granted the Motion, see Minute Entry (Doc. No. 201) at 1. After a subsequent jury trial, Litvak was convicted of the remaining fifteen counts in the Indictment on March 7, 2014. See Verdict Form (Doc. No. 229) at 1–3. The court denied Litvak’s pending and post-trial motions, see generally United States v. Litvak, 30 F. Supp. 3d 143 (D. Conn. 2014),3 and Litvak was sentenced, see generally Judgment (Doc. No. 275). The Court of Appeals for the Second Circuit reversed the judgment of conviction as to the fraud on the United States and making false statements charges, vacated the judgment of conviction on the securities fraud charges, and remanded for a new trial. United States v. Litvak, 808 F.3d 160, 190 (2d Cir. 2015).4 3The court’s Ruling on the pending and post-trial motions following the 2014 trial is also available at Docket Number 265. 4 The Second Circuit’s Mandate, wherein it notes that court’s disposition of the appeal, is also available at Docket Number 305. GA140 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 4 of 28 At the second trial, the government’s evidence consisted of, among other things: (1) time-stamped electronic chats ("Bloomberg chats") reflecting correspondence among Litvak, Litvak’s coworkers at Jefferies, and various parties with whom Litvak negotiated RMBS bond trades; (2) trade tickets indicating the prices at which Jefferies— through Litvak—purchased or sold RMBS bonds; (3) testimony of a Bloomberg, LP employee, Sean Mossman, regarding various aspects of Bloomberg chats and the software and technology by which those chats are sent and received; (4) testimony of a Jefferies employee, Joseph Darconte, about Bloomberg chats, trade tickets, and employee training/compliance requirements; (5) testimony of Thomas Carocci of the Financial Industry Regulatory Authority ("FINRA") as to exams taken by Litvak; (6) testimony of Litvak’s counterparties in several of the charged trades—Michael Canter of AllianceBernstein, Katherine Corso of York Capital, Vladimir Lemin of Magnetar Capital, Brian Norris of Invesco Advisors, and Joel Wollman of QVT Financial—who testified about their negotiations with Litvak, their experiences as traders in the RMBS bond market, and the impact of Litvak’s misrepresentations on their trade execution; and (7) testimony of Special Agent James O’Connor, of the Office of the Special Inspector General for the Troubled Asset Relief Program, regarding the investigation into Litvak’s activities at issue in this case. Having disclosed four experts before trial, see generally Supplemental Expert Disclosure (Doc. No. 475-1), Litvak called one expert witness, Phillip "Buck" Burnaman, who testified about practices in the RMBS bond market. Litvak moved for a directed verdict, see generally Oral Mot. for Directed Verdict (Doc. No. 497); Mem. of Law in Supp. of Jesse C. Litvak’s Mot. for J. of Acquittal GA141 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 5 of 28 Pursuant to Fed. R. of Crim. P. 29(a) at 1–6, 8 (Doc. No. 500), and the court denied that Motion, see Minute Entry (Doc. No. 498) at 1; Order (Doc. No. 505). On January 13, 2017, the case was submitted to the jury. On January 27, 2017, the jury returned a verdict of guilty on Count Four of the Indictment, while finding Litvak not guilty on Counts One through Three, Five, Six, and Eight through Eleven. See Verdict Form (Doc. No. 510) at 1–2. Following the jury’s verdict, Litvak filed the pending Motion. III. MOTION FOR JUDGMENT OF ACQUITTAL A. Legal Standard Federal Rule of Criminal Procedure 29(c)(1) provides that "[a] defendant may move for a judgment of acquittal" after a guilty verdict. The court must, upon motion of the defendant, "enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction." Fed. R. Crim. P. 29(a). "In challenging the sufficiency of the evidence, the defendant faces an uphill battle, and bears a very heavy burden...." United States v. Mi Sun Cho, 713 F.3d 716, 720 (2d Cir. 2013) (quoting United States v. Crowley, 318 F.3d 401, 407 (2d Cir. 2003)). The court "must view the evidence in the light most favorable to the Government, crediting every inference that could have been drawn in the Government’s favor, and deferring to the jury’s assessment of witness credibility and its assessment of the weight of the evidence." United States v. Litvak, 808 F.3d 160, 170 (2d Cir. 2015) (quoting United States v. Brock, 789 F.3d 60, 63 (2d Cir. 2015)). Although "the government must do more than introduce evidence'at least as consistent with innocence as with guilt,’" United States v. D’Amato, 39 F.3d 1249, 1256 (2d Cir. 1994) (quoting United States v. Mulheren, 938 F.2d 364, 372 (2d Cir. 1991)), the jury’s verdict GA142 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 6 of 28 must not be disturbed so long as "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Brock, 789 F.3d at 63 (quoting United States v. Coplan, 703 F.3d 46, 62 (2d Cir. 2012)). "[C]ourts must be careful to avoid usurping the role of the jury when confronted with a motion for acquittal." United States v. Facen, 812 F.3d 280, 286 (2d Cir. 2016) (quoting United States v. Jackson, 335 F.3d 170, 180 (2d Cir. 2003)). "Accordingly, [t]he government’s case need not exclude every possible hypothesis of innocence, and where either of the two results, a reasonable doubt or no reasonable doubt, is fairly possible, [the court] must let the jury decide the matter." Id. (quotation marks and citations omitted). Finally, in ruling on a motion brought pursuant to Rule 29, the court must view the evidence "in its totality, as each fact may gain color from others." United States v. Cassese, 428 F.3d 92, 98–99 (2d Cir. 2005) (quotation marks and citations omitted). B. Discussion Before convicting Litvak of any given count of securities fraud, the jury was required to find that the government had proven beyond a reasonable doubt the following four elements as to that count: (1) In connection with the purchase or sale of the security identified in that count, Mr. Litvak— (a) employed a device, scheme, or artifice to defraud, or (b) made an untrue statement of a fact or omitted to state a fact which made what was said, under the circumstances, misleading, or (c) engaged in an act, practice, or course of business that operated, or would operate, as a fraud or deceit upon a purchaser or seller; (2) The statement or conduct related to a fact that would be material to a reasonable investor; GA143 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 7 of 28 (3) Mr. Litvak acted willfully, knowingly, and with the intent to defraud; and (4) Mr. Litvak knowingly used, or caused to be used, the mails or any means or instruments of transportation or communication in interstate commerce in furtherance of the fraudulent conduct. Jury Charge (Doc. No. 523) at 43. In the pending Motion, as he did at trial, Litvak focuses almost exclusively on the sufficiency of the evidence on the second element, materiality. See, e.g., Motion at 1 ("The government’s evidence of materiality on Count 4 was notably weak and ultimately insufficient to support a conviction...."). The jury convicted Litvak of one of the ten securities fraud charges on which it was asked to render a verdict. Count Four—the count on which the jury found Litvak guilty—relates to Litvak’s misrepresentations in the course of a July 1, 2010 trade with Invesco’s Brian Norris ("Norris"). See Indictment ¶ 55. Norris instructed Litvak to bid 79-24 in a BWIC auction for the "SARM 05-21 7A1" bond ("SARM bond").5 See Govt. Ex. ("GX") 43B. Although Litvak informed Norris that he had "bid [his] level," see id., Litvak had actually acquired the bond for 79-16, see GX 40A. Litvak and Norris subsequently agreed on a six-tick charge, in addition to the 79-24 price Litvak told Norris he had paid for the bond, to compensate Jefferies and Litvak for facilitating the transaction. See GX 43B. In the end, Norris and Invesco purchased the SARM bond for 79-30. See GX 40B. Litvak offers several arguments in support of his contention that there was insufficient evidence to prove the materiality element of Count Four. First, he argues 5 In the RMBS bond market, the price of bonds are communicated as a percentage of the face value of the bond. The number before the dash refers to a percentage of the bond value, in whole numbers. The number after the dash refers to multiples of one-thirty-second of one percent. Units of one-thirty-second of one percent are referred to as "ticks." Thus, when Norris instructed Litvak to bid "79-24" for the SARM, he instructed Litvak to bid 79.75% (79% + (24/32)%) of the current face value of the bond. See Trial Tr. at 582:11–583:25 (Darconte). GA144 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 8 of 28 that Norris’s misunderstanding of his relationship with Litvak—that Litvak was acting as Norris’s "agent"—renders Norris an unreasonable investor and renders his views about the importance of Litvak’s misstatements of no weight in any materiality inquiry. See Motion at 1–2, 9–12; Reply at 2–4. Second, Litvak contends that his lie about Jefferies’s bid price was immaterial because it was not "meaningful" in the context of the trade with Norris. See Motion at 2, 12–13; Reply at 6–7. Third, Litvak argues that his misrepresentation was not material, because Invesco could not plausibly have been harmed. See Motion at 13–15; Reply at 8–9. Fourth, Litvak insists that the government cannot point to evidence regarding uncharged conduct as probative of the materiality of Litvak’s misstatement in effectuating the SARM bond trade at issue in Count Four. See Motion at 15–16; Reply at 9. The government disputes each of Litvak’s arguments in turn, see Opp’n at 10–18, and asserts that the evidence on materiality was sufficient to support a conviction on Count Four, see Opp’n at 4–10. Before delving into the specifics of the Motion and related briefing, the court pauses to make two, preliminary points. The court is not—just as the jury was not— limited to Norris’s testimony regarding the SARM bond in determining if the government has offered sufficient evidence to prove beyond a reasonable doubt that Litvak’s misstatement to Norris was material. See United States v. Cassese, 428 F.3d 92, 98– 99 (2d Cir. 2005) (requiring that, when ruling on Rule 29 motion, court view evidence "in its totality, as each fact may gain color from others" (quotation marks and citations omitted)). Second, despite the temptation to try to tease out the jury’s logic in acquitting on nine of ten counts, the court’s "review of whether evidence was sufficient to support a conviction on one count is'independent of the jury’s determination that evidence on GA145 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 9 of 28 another count was insufficient.’" United States v. O’Connor, 650 F.3d 839, 856 (2d Cir. 2011) (quoting United States v. Powell, 469 U.S. 57, 67 (1984)). The court will first discuss and evaluate the sufficiency of the evidence on materiality and will then address Litvak’s specific arguments as to the insufficiency of the evidence. 1. Evidence on Materiality Norris’s testimony at trial concerning the trade at issue in Count Four provided sufficient evidence for the jury to conclude beyond a reasonable doubt that Litvak’s misstatements regarding the price at which he had purchased the SARM bond were material. See Jury Charge at 47. Crucially, Norris testified that broker-dealers earn money facilitating BWIC trades in one of two ways: They can, you know, bid our level, which is what [I thought] happened here. Then after the fact, I will negotiate a transaction or a commission fee for them and I will pay slightly higher than this. Or the second way to do it is to say, you know, I will back up the bid. So they’ll actually send a lower price to the seller and their commission will be the difference between that lower price and the price that I sent him. Id. 750:7–750:14. In purchasing the SARM bond, Litvak told Norris that he had "bid [his] level," a misrepresentation which led to a brief negotiation as to the additional amount Invesco would pay Jefferies. See GX 43B. According to Norris’s testimony quoted immediately above, if Litvak had told Norris he had actually bid 79-16, he would have earned the eight-tick difference between that figure and the 79-24 bid price Norris had set as his "level"; no meaningful negotiation would have followed. Norris’s testimony regarding the way in which the RMBS bond market worked, particularly in the context of BWIC trades, provided sufficient evidence for the jury to conclude that Litvak’s lie about the bid price "significantly altered the total mix of GA146 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 10 of 28 information available." See Jury Charge at 47. Indeed, the negotiations that resulted in Norris’s agreement to pay six ticks to Jefferies proceeded from the erroneous premise (created by Litvak’s misrepresentation) that Litvak had paid 79-24, rather than backing up Norris’s bid (at 79-16). The jury could reasonably have concluded that Litvak’s misstatement was material—significantly altering the total mix of information available to a reasonable investor—because it provided an incorrect baseline from which Jefferies’s earnings were determined. And further, it led to Litvak receiving income for his firm very much in excess of what Norris was led to believe he was agreeing to. Norris testified that it would "have mattered to [him] if [he] had known that Jefferies bought the bond for 79-16," because that would mean Invesco "could buy the bond cheaper for [its] clients." Trial Tr. at 751:23–752:3. He elaborated, noting that it was "highly unlikely" he would have paid fourteen ticks—the difference between the price at which Jefferies actually purchased the SARM bond and the price at which it sold the bond to Invesco—to Jefferies for this kind of transaction. See id. at 752:4– 752:14. From this testimony, the jury was permitted to draw the reasonable inference that Litvak’s lie would have mattered and been important to a reasonable investor. Moreover, Norris’s testimony about the ways in which broker-dealers earn money was consistent with his testimony and interaction with Litvak regarding an uncharged trade, in which Invesco purchased a different bond from Litvak on June 24, 2010. See id. at 756:11–757:4, 759:4–759:23. Norris’s testimony about these two trades may well have underscored for the jury the extent to which buyers in BWIC trades are dependent on the representations of the broker-dealer with whom they are working. Norris appeared to have no way of independently verifying the price Litvak actually paid for the GA147 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 11 of 28 bond,6 which price would dictate the amount of money Litvak was to receive (if he "backed up" the buyer’s bid), or provide the starting point for discussions as to the amount of money the buyer would pay in addition to his bid price to compensate the broker-dealer. While this testimony alone would be sufficient, other government witnesses similarly testified about the importance of paying the minimum amount of money possible for RMBS bonds, in order to make more money for their clients. See, e.g., Trial Tr. at 169:16–169:21 (Canter), 498:9–498:23 (Corso), 762:8–762:20 (Norris). The jury could thus conclude that the reasonable investor would have viewed lies that caused them to pay even just slightly more than they had agreed to as important and material. Based on the nature of BWIC transactions, as explained by Norris and others, and given extensive witness testimony underscoring the importance of paying as little as possible for RMBS bonds, the jury had before it evidence to find beyond a reasonable doubt that Litvak’s misrepresentation to Norris, charged in Count Four, was material. 6 Though he did not testify as to the specifics of Litvak’s trade with Norris, Litvak’s expert Phillip "Buck" Burnaman testified as follows, regarding the opacity of BWIC trades: Q. And in BWICs, the broker-dealer knows the price it submits into the auction to the seller? A. Yes. Q. And the bidder only knows the price that the broker-dealer put in the auction in this BWIC if the broker-dealer tells them? A. Yes. Trial Tr. at 1272:20–1273:1. Here, Litvak/Jefferies was the broker-dealer, and Norris/Invesco was the bidder. GA148 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 12 of 28 Next, the court turns to Litvak’s specific arguments that the evidence offered at trial was insufficient.7 2. Norris’s Misunderstanding of Litvak’s Status The court begins with Litvak’s contention that Norris’s misunderstanding of his relationship with Litvak is grounds for an acquittal. See generally Motion at 1–2, 9–12; Reply at 2–4. Litvak’s argument appears to be that Norris’s erroneous belief that Litvak was his agent was unreasonable and led him to give weight to Litvak’s lie that he would not otherwise have afforded it. Indeed, in his Reply, Litvak states that, "Mr. Norris’s mistake affected the weight he gave the misstatement." Reply at 3. In effect, Litvak’s argument is that, because no reasonable investor would have thought Litvak was acting as his agent, Norris is not a reasonable investor. Ignoring the rest of the trial record, Litvak then argues that, without Norris’s testimony, there is no evidence that a reasonable investor would have given any credence to Litvak’s misrepresentation that he had "bid [Norris’s] level," and so the misstatement is immaterial. See Motion at 9– 12. The government concedes that Litvak was not acting as Norris’s agent in the RMBS bond trades, see Opp’n at 11, but disputes the significance of this point to the issue of 7 While the record of the instant trial stands alone, without regard to the first trial record, it bears noting with regard to all of Litvak’s materiality arguments that the record here is essentially the same as when the Circuit stated the following: We conclude that, on the trial record before us, a rational jury could have found that Litvak’s misrepresentations were material. The trial record includes testimony from several representatives of Litvak’s counterparties that his misrepresentations were "important" to them in the course of the transactions on which the securities fraud charges were predicated and that they or their employers were injured by those misrepresentations. This testimony precludes a finding that no reasonable mind could find Litvak’s statements material. Litvak, 808 F.3d at 175–76 (citations omitted). GA149 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 13 of 28 whether there was sufficient evidence before the jury to support a guilty verdict on Count Four, see Opp’n at 11–13.8 Initially, the court notes that Litvak’s argument appears inconsistent with the law set forth above. See supra Part III.A. Unless the defendant is arguing that, as a matter of law, Norris’s testimony must be ignored, it is for the jury to assess and weigh the testimony and determine what inferences to draw from it (e.g., Norris viewed information as "material," and thus a reasonable investor would have viewed it as material). If Litvak’s argument is indeed that, because Norris viewed Litvak as his agent, his testimony is per se not evidence on which a reasonable jury can rely, the court notes the absence of any case citations to support such an argument. While it is conceivable that a witness’s testimony could be so fanciful that, as a matter of law, it could not support a guilty finding by a reasonable jury, Norris’s testimony is clearly not so outrageous or incredible. Norris presented as an intelligent, educated, calm, rational person, experienced in his field, whose testimony could well support a guilty verdict standing alone, but if necessary, Norris’s testimony was further buttressed by testimony of other witnesses that was consistent with his own. Before turning to address Litvak’s contention that there is no other evidence of materiality once Norris’s testimony is erased, the court will also address what it views as a false premise of the defendant’s argument. While clever, in the court’s view it misses the mark. Assume, because Norris viewed Litvak as his "agent," Norris trusted Litvak 8 Contrary to Litvak’s view, the government’s Opposition does not appear to concede—explicitly or implicitly—that Norris was not a reasonable investor. But see Reply at 2 ("The government’s implicit concession that Mr. Norris was not a'reasonable investor’ is a major development in this case."). In fact, the government argues that "Jefferies’ principal or agent capacity was irrelevant to [Norris’s] prior testimony that the misrepresented information'mattered’ and was'important’...." Opp’n at 12. GA150 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 14 of 28 more and expected Litvak to act in his best interest.9 Contrast that with a broker-dealer whom Norris did not view as acting in an "agency" relationship (let’s call him Jones). Norris may not trust what non-agent Jones says. However, as is clear from Norris’s testimony, he would still view statements by both Litvak and Jones concerning the price at which they purchased the bond as important. As to knowing the true price Litvak (or Jones) paid for the bond, Norris testified that it "absolutely [] would" matter. Trial Tr. at 751:25; see also Trial Tr. at 752:10 ("Yes, absolutely it would be important."); Trial Tr. at 752:17 (characterizing the difference between the amount Norris thought Jefferies received and amount it did receive—i.e., the cost to Norris’s clients of Litvak’s misrepresentation—as "significant"); Trial Tr. at 805:11–805:15 ("Q. And whether Litvak was an agent or principal, did that make a difference to you as to whether you thought Litvak was telling the truth when he said he was using your bid? A. No, it does not."). While Norris might trust the truthfulness of the statement made by Litvak more than one made by Jones, Norris would view information about price as important regardless of whether Jones or Litvak was the speaker. Norris not only testified clearly that misstatements regarding the price paid by the broker-dealer were material—as they would be "important in making an investment decision," Jury Charge at 48—he explained why being told a lie about the price paid mattered. If not lied to, Norris would not have paid 29-30. Trial Tr. at 752:12–752:14 ("Because it [the 14 ticks Jefferies made on the trade] is significantly more than we would typically pay for this type of transaction, so it is more money that our clients are paying for the bond."). In the trade at issue in Count Four, the difference was 9 Surely, given Litvak’s lies, Norris was sorely disappointed. GA151 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 15 of 28 approximately $73,000. See id. at 1091:3 (O’Connor). Norris later testified that a difference of as little as two ticks (worth just $276) mattered. See id. at 762:14–762:16. Defendant seeks to obfuscate this clear evidence by suggesting Norris gave unreasonable weight to the price information Litvak gave him. Reading all of Norris’s testimony, as a whole, the jury could (and did) reasonably conclude beyond a reasonable doubt that a misstatement about price mattered to a reasonable investor in Norris’s position. In fact, there was sufficient evidence from Norris’s testimony alone for the jury to conclude that such misstatements mattered to a reasonable investor, whether put to him by an agent or another. See id. at 805:11–805:15 ("Q. And whether Litvak was an agent or principal, did that make a difference to you as to whether you thought Litvak was telling the truth when he said he was using your bid? A. No, it does not."). That Norris mistakenly viewed Litvak as an "agent" might affect the level of shock he experienced to learn that Litvak had lied to him. However, it would not alter the importance to Norris of the price information he received in pursuing a trade. To be clear—whether Litvak was his agent or not—the reasonable investor, including Norris, might very well not have given Litvak’s characterizations of the deal they were consummating (e.g., whether they were getting a "good" or "fair" price, or it was a "great deal") very much credence, in the face of internal analytics by, e.g., Norris’s employer (Invesco) that provided a valuation for the bonds. In contrast, for the reasons set forth above, investors were heavily reliant on Litvak’s representations of the specific prices at which he bought the bonds subsequently transferred to them. See, supra, at 10–11 & n.6. GA152 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 16 of 28 It is undisputed here that every buyer of the RMBS bonds at issue in this trial entered the market armed with an analytical report prepared by his/her company which, based on its judgment, set a range of possible purchase prices in relation to their expected yields. Knowing the lowest yield he would accept, the buyer entered the market with essentially a "ceiling" on the price he would be willing to pay for a bond. However, while there was a "ceiling," there was extensive, undisputed testimony that the buyer would want to purchase a given bond at a price lower than that ceiling, if possible, thus increasing the projected yield on the bond. Notwithstanding Norris’s confusion about agency relationships, the court concludes that there was sufficient evidence to support the jury’s finding that the misstatement was material. First, Litvak’s suggestion that Norris’s misunderstanding of their relationship renders him an unreasonable investor sweeps too broadly. Though Litvak offers one plausible evaluation of Norris’s status as a reasonable investor—that because Norris received and forwarded legal guidance that flatly stated broker-dealers were acting on their own behalf, yet persisted in the belief that Litvak was his agent, he is per se unreasonable, see Motion at 11—it is by no means one that is mandated by the evidence. Indeed, the jury was entitled to believe that, despite his mistaken understanding of his relationship with Litvak, Norris attributed the same importance to Litvak’s misstatements about price that any reasonable investor would have. Moreover, even if the jury agreed with Litvak that Norris’s testimony as to the "importance" of Litvak’s misstatements should be set aside, it would still have sufficient evidence before it to find Litvak’s lies material. As noted above, Norris testified about the way in which broker-dealers were compensated for facilitating BWIC trades. See GA153 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 17 of 28 supra Part IV.B.1 (quoting Trial Tr. at 750:7–750:14). The evidence was sufficient for the jury to conclude that the objective investor, without any illusions as to Litvak’s status as a principal, would have considered Litvak’s lie as "meaningfully affect[ing] [that] reasonable investor’s consideration about whether to buy or sell, and at what price," Jury Charge at 47 (emphasis added). Norris stated that, when broker-dealers bid the purchaser’s level in a BWIC trade, that price serves as the starting point for negotiations regarding the additional amount that will be paid to the broker-dealer. See Trial Tr. at 750:7–750:11. Notably, there is no reason to believe this description of the RMBS bond market would have been effected in any way by Norris’s view of Litvak as an "agent." Thus, there was sufficient evidence for the jury to conclude that Litvak’s misrepresentation about the price he bid substantially changed the amount Jefferies received in compensation and the amount Norris paid. The jury could easily find, as it did find, that such an undisclosed increase in Jefferies’s compensation would have been "important [to the reasonable investor] in making an investment decision." Despite Norris’s conceded misunderstanding of his relationship with Litvak, there was sufficient evidence for the jury to conclude that Litvak’s lie to Norris was a material misrepresentation. 3. "Meaningfulness" of Litvak’s Misrepresentations Litvak also argues that the evidence as to Count Four was insufficient because there was no evidence that his lies were "meaningful," given that Norris ended up paying a price for the SARM bond that he was "willing to pay... to acquire the bond." See Motion at 13. GA154 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 18 of 28 This attempt to narrow the universe of misrepresentations proscribed by the securities laws is unavailing. In a portion of Jury Instruction 35 that Litvak quotes, but does not emphasize, see id. at 12, the court instructed the jury that misstatements that "meaningfully affect a reasonable investor’s consideration about whether to buy or sell, and at what price" are material, Jury Charge at 47 (emphasis added). The fact that Norris ultimately bought the SARM bond, and had a range of prices at which he was willing to do so, does not negate the jury’s ability to conclude that Litvak’s lie—that he "bid [Norris’s] level," GX 43B—would affect a "reasonable investor’s consideration" about "what price" that investor would pay for that bond, Jury Charge at 47. In fact, Norris’s testimony was clear that there was negotiation regarding how much above the 79-24 bid Invesco would pay for the bond as a direct result of, and because of, Litvak’s lie. Litvak’s counsel ignores significant portions of Norris’s testimony to reach their conclusion that Litvak’s lie did not matter to or did not significantly alter the total mix of information available to the reasonable investor. Norris testified that his eventual, post-lie agreement to pay Litvak 79-30 was based upon Litvak’s misrepresentation that he paid 79-24. Trial Tr. at 750:21–750:24 ("So 6 ticks is my suggestion for the commission for his service as the broker, and then I just added that 6 ticks to the 79-24 and said 79-30 to me, which would be the price that Invesco pays." (emphasis added)). Had Litvak not lied, Norris made clear he would not have GA155 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 19 of 28 paid 79-30. See id. at 751:23–752:20.10 As Norris explained, "the most important variable... [is] potential yield," id. at 788:8–788:10, and that yield is inversely related to price, id. at 806:12–806:14. Norris testified that the $73,000 excess paid to Litvak because of Litvak’s lie was "significant" to Norris. Id. at 752:17. The sections of testimony cited by Litvak at pages 12–13 of his Motion could suggest to someone not present at trial that the misrepresentation did not have a "meaningful effect" upon Norris’s decision to buy and at what price.11 However, that "suggestion" is belied by the 10 Norris’s testimony on this point is as follows: Q. Would it have mattered to you if you had known that Jefferies bought the bond for 79-16? A. Yes, absolutely it would. Q. Why would it have mattered to you? A. Because then we could buy the bond cheaper for our clients. Q. Would you have knowingly paid 14 ticks of commission on this trade? A. It is highly unlikely we would pay that much on this type of transaction. Q. Would it be important if you knew that Litvak was making 14 ticks on this trade? A. Yes, absolutely it would be important. Q. Again, why would it be important? A. Because it is significantly more than what we would typically pay for this type of transaction, so it is more money that our clients are paying for the bond. Q. If I tell you the difference between 14 and 6 ticks is about $73,000, does that change your answer? A. No. That’s significant. Q. Why is that? A. It is a significant amount of money for our clients that we’re paying on the top of what we could have paid. Trial Tr. at 751:23–752:20. 11 In arguing that Norris’s "negotiating position did not change," Motion at 13, Litvak seems to want to forget that he lied: Norris set his starting "negotiating position" by communicating his bid of 79-24, and Litvak told Norris that he "bid" Norris’s level (i.e., 79-24). Norris thus had no reason to change from his initial position. GA156 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 20 of 28 entirety of Norris’s testimony, based upon which a reasonable jury could find beyond a reasonable doubt that something Litvak said did "significantly alter the total mix of information available" and had a "meaningful effect" upon the investment decision. Because of Litvak’s misrepresentation, Norris did not pay 79-24 for the SARM bond, and Litvak did not receive just eight ticks of compensation. See Trial Tr. 750:12– 750:14 (explaining that, when broker-dealers "back up the bid," "they’ll actually send a lower price to the seller and their commission will be the difference between that lower price and the price that I sent them" (emphasis added)). Yet, because Litvak misrepresented that he had bid Norris’s level, the parties negotiated, albeit very quickly, six ticks of compensation for Jefferies, and Norris paid 79-30 for the SARM bond. See id.; GX 43B. There was therefore sufficient evidence for the jury to reasonably conclude that Litvak’s misrepresentation to Norris was "meaningful" and hence "material." 4. Harm Suffered by Invesco as a Result of Litvak’s Misstatements Litvak further suggests that the jury’s verdict should be set aside in favor of a judgment of acquittal because, "[i]n order to be material, a misstatement must not only have some meaningful effect on the investor, there must also be a'plausible way that [the investor] could suffer financially’ as a result of it." Motion at 13 (quoting Levine v. NL Indus., Inc., 926 F.2d 199, 202–03 (2d Cir. 1991)). This argument rests, again, on Litvak’s notion that Norris "had no reasonable expectation of paying any less than the 79-30 he paid." Reply at 9. Though Litvak chides the government for "ignor[ing] most of the authorities cited in Mr. Litvak’s brief establishing that the potential for financial harm is an essential component of materiality in the Section 10(b) context," Reply at 8, Litvak cites GA157 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 21 of 28 repeatedly to cases from the Seventh Circuit in this portion of his Motion, see Motion at 13–15. The only Second Circuit cases Litvak cites are Levine v. NL Industries, Inc., 926 F.2d 199 (2d Cir. 1991), and the Circuit’s 2015 opinion in this case, both of which the government addresses, see Opp’n at 15–16. The court is unconvinced that either of these cases, or Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir. 1996), see Reply at 8, announced a "plausible financial harm" requirement for the materiality element of securities fraud. As the government points out, see Opp’n at 15, Levine has never been cited in a criminal case and so is unlikely to have heralded any sea change in securities law. Moreover, Levine and Feinman are best read as applying the materiality definition developed in this Circuit to the specifics of those cases. In Levine, the misrepresented information was "immaterial because [the federal government] had agreed to indemnify" the defendant. 926 F.2d at 203. That being the case, because the shareholder plaintiffs could not plausibly have suffered financially, "a reasonable investor would not consider [defendant’s] asserted violation of environmental law important information significantly altering the total mix of information made available to the investor." Id. Similarly, in Feinman, the Circuit’s opinion rested on its conclusion that "reasonable minds could not find that an individual investing in the stock market would be affected in a decision to purchase or sell a security by knowledge that the broker was pocketing a dollar or two of the fee charged for the transaction." 84 F.3d at 541. In both cases, the lack of a financial harm was indicative of a lack of materiality, rather than a requirement in and of itself. GA158 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 22 of 28 Even if there must be a "plausible way that [the investor] could suffer financially" from Litvak’s misstatement in order for it to be material, the evidence here was sufficient to support such a finding. Again, Litvak’s contention that "Invesco [s]uffered [n]o [h]arm," see Reply at 8, rests on a mischaracterization of the way in which Litvak and Norris arrived at the price Norris ultimately paid for the bond. Litvak states that Norris paid "the very same price [he] had decided to pay" when he first discussed the bond with Litvak. See Motion at 14 (emphasis added). The correct verb, to accurately describe Norris’s testimony, would be "was willing," not "had decided." As set forth above, Norris’s willingness to pay 79-30 was based on Litvak paying 79-24 to acquire the bond. See Trial Tr. at 750:7–750:14. The evidence is more than sufficient to support a finding that reasonable investors rely on broker-dealers to honestly communicate whether they have backed up the bid or not. See, e.g., id. at 454:10– 454:15 (Canter) ("In my mind, you know, what we got upset about was him lying on very specific transactions, you know, not general BS or vague commentary. It was very specific lying on trades that were bid list trades where he had a very simpl[e] task to turn around and give our bids to the dealer. He didn’t do that." (emphasis added)). Purchasers do not appear to have any way to independently verify the broker-dealer’s purchase price, even as that purchase price plays a necessary role in determining the total price the purchaser pays to acquire the bond. The jury had more than enough evidence to conclude that Litvak’s misrepresentation actually caused Invesco harm, in GA159 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 23 of 28 leading it to pay 79-30 when it would otherwise have paid less.12 The government’s witnesses—both those who erroneously viewed Litvak as their "agent" and those who did not—repeatedly made clear that they viewed price information conveyed to them by broker-dealers to be "important"; this was true even when misrepresentations related to price caused relatively minor overpayments in relation to the total sum spent to purchase a given bond. See, e.g., Trial Tr. at 182:10– 182:17 (Canter) ($3,120), 762:3–762:20 (Norris) ($276). The jury could reasonably conclude that Litvak’s lies substantially altered the total mix of information available to his counterparties, who were harmed by paying more money or selling for less money than they would have absent his lie. Indeed, Litvak’s expert witness, Phillip "Buck" Burnaman, testified that investment managers’ goal is "to buy low and sell high." See id. at 1279:12–1279:13. Though not directly related to the pricing information misstated during the trade charged in Count Four, testimony of other witnesses provided relevant information regarding the extent to which reasonable investors would suffer a financial harm by the fraudulent statement charged in Count Four. Thus, even if satisfaction of the materiality element required finding a "plausible financial harm" to Invesco, there was more than sufficient evidence for the jury to 12 In the Invesco transaction, of course, Litvak’s misrepresentations led to Jefferies receiving more than "a dollar or two," see Feinman, 84 F.3d at 541; see also Litvak, 808 F.3d at 176–77 (distinguishing Feinman, 84 F.3d 539 (2d Cir. 1996)). Indeed, Litvak’s firm received $73,000 because of his fraud. Many witnesses testified that in the RMBS bond market, even small overpayments would have affected decisions to purchase or sell securities and at what price those transactions would take place, see Trial Tr. at 169:16–169:21 (Canter), 498:9–498:23 (Corso), 762:8–762:20 (Norris). In the proof at trial, the delta was in some cases as large as $602,396.91, see Trial Tr. at 1054:24 (testimony of Special Agent O’Connor regarding trade charged in Count Two), $211,553.20, see Trial Tr. at 1108:19 (testimony of Special Agent O’Connor regarding trade charged in Count Six), or $228,561.45, see Trial Tr. at 1112:5 (testimony of Special Agent O’Connor regarding trade charged in Count Eight). In Count Four, it was $73,018.53. See Trial Tr. at 1091:3 (testimony of Special Agent O’Connor regarding trade charged in Count Four). This was indisputably more than a small overpayment of "a dollar or two." GA160 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 24 of 28 conclude that Invesco could have and/or did in fact suffer financial harm as a result of Litvak’s lies. 5. Uncharged Trades After arguing that the evidence from Norris about Count Four is insufficient as to materiality, Litvak asserts that "none of the uncharged trade evidence is relevant to materiality on Count 4." Reply at 9; see also Motion at 15–16. In this court’s view, this statement is wrong. The jury was permitted to draw upon testimony from any of the witnesses in deciding whether "there was a substantial likelihood that the misstated or omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information available." See Jury Charge at 47; cf. United States v. Cassese, 428 F.3d 92, 98–99 (2d Cir. 2005) (requiring that, when ruling on Rule 29 motion, court view evidence "in its totality, as each fact may gain color from others" (quotation marks and citations omitted)). As the defense pointed out repeatedly before, during, and after trial, "what matters is not Mr. Norris’s subjective understanding of his relationship with Mr. Litvak," as "the jury was to evaluate materiality in an objective manner." See Motion at 10 (quotation marks and citations omitted, emphasis in original). Clearly, then, the jury could turn to evidence offered by Norris—whether or not related to Count Four—or any other witness that might provide relevant "color" as to what the objective, reasonable investor involved in a BWIC trade would consider a material misstatement. Nor does the court believe that there is any significant risk of juror confusion about the trades in which Norris was involved. Despite possible confusion of some who GA161 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 25 of 28 sat through parts or all of the trial,13 see Motion at 3 & n.2, there is no indication that the jury was confused or that it discharged its responsibilities with anything but the utmost care. In its Charge, the court admonished the jury to "consider each count separately," and not to let its findings on one count determine its verdict as to any other count. See Jury Charge at 33. By all accounts, the jury heeded this instruction, returning a guilty verdict on one count and a not guilty verdict on nine counts. Having concluded that the evidence was sufficient for a reasonable jury to return a guilty verdict on Count Four, the court is not at liberty to overturn that verdict based on a news article. There is no non-speculative indication that the jury based its verdict solely on the evidence of the uncharged trade conduct, however, rather than on its findings with regard to Count Four. The evidence was sufficient to sustain a conviction, even relying only on Norris’s testimony about the trade charged in Count Four. Further, there was additional relevant and probative testimony from Norris on uncharged conduct and from others, see, e.g., Trial Tr. at 454:10–454:15 (Canter), that added to the proof on Count Four. 6. Other Arguments Finally, Litvak raises arguments regarding the materiality and scienter elements of securities fraud, see Motion at 16–17, that have already been rejected by this court as contrary to Second Circuit precedent, see Trial Tr. at 1302:17–1304:21. Specifically, the court has rejected Litvak’s "benefit of the bargain" theory, which relies primarily on out-of-circuit wire fraud cases, see Motion at 16 (citing, inter alia, United States v. 13 If this court is correct, the jury can rely on all testimony. Thus, it is not abjectly wrong for a person to state that evidence unequivocally showing a lie in an altered document "led" to Litvak’s conviction. See Motion at 3 & n.2. GA162 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 26 of 28 Takhalov, 827 F.3d 1307 (11th Cir. 2016)), and does so again here. To be clear, these cases are, in relevant part, consistent with the Second Circuit’s interpretation of the wire fraud statute,14 a statute that has often been distinguished from the securities fraud statute, see, e.g., United States v. Litvak, 808 F.3d 160, 178–79 (2d Cir. 2015). Additionally, the Second Circuit has explicitly rejected Litvak’s argument that contemplated harm is a component of the scienter element of securities fraud. See Litvak, 808 F.3d at 178–79 (discussing, inter alia, United States v. Vilar, 729 F.3d 62 (2d Cir. 2013)). Finally, the court rejects Litvak’s contention that the "omissions" language in the jury instructions should not have remained. Inclusion of such language was a correct statement of the law, warranted by the facts of this case, and unlikely to have caused juror confusion. See, e.g., Trial Tr. at 1312:16–1313:2 (rejecting Litvak’s request to strike "omission" language from Jury Charge); ECA, Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) ("In other words, in order for the misstatement to be material,'there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information available.’" (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231–32 (1988))). In sum, the evidence at trial was sufficient for the jury to return a guilty verdict on Count Four. Therefore, Litvak’s Motion for a Judgment of Acquittal is denied. 14 See, e.g., United States v. Shellef, 507 F.3d 82, 108 (2d Cir. 2007) ("Our cases have drawn a fine line between schemes that do no more than cause their victims to enter into transactions they would otherwise avoid—which do not violate the mail or wire fraud statutes—and schemes that depend for their completion on a misrepresentation of an essential element of the bargain—which do violate the mail and wire fraud statutes."). GA163 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 27 of 28 IV. MOTION FOR A NEW TRIAL A. Legal Standard Federal Rule of Criminal Procedure 33 permits the court, if moved by the defendant, to "vacate any judgment and grant a new trial if the interest of justice so requires." Fed. R. Crim. P. 33(a). The court "must examine the entire case, tak[ing] into account all facts and circumstances," but "[t]he ultimate test... is whether letting a guilty verdict stand would be a manifest injustice." United States v. Aguiar, 737 F.3d 251, 264 (2d Cir. 2013) (quoting United States v. Ferguson, 246 F.3d 129, 134 (2d Cir. 2001)). While the court has broad discretion to set aside a jury verdict and order a new trial "to avert a perceived miscarriage of justice," it "must strike a balance between weighing the evidence and credibility of witnesses and not wholly usurp[ing] the role of the jury." United States v. Triumph Capital Grp., Inc., 544 F.3d 149, 159 (2d Cir. 2008) (quotation marks and citations omitted). "While courts have'broader discretion to grant a new trial under Rule 33 than to grant a motion for acquittal under Rule 29,’ they'nonetheless must exercise Rule 33 authority sparingly and in the most extraordinary circumstances.’" Id. (quoting Ferguson, 246 F.3d at 134). B. Discussion Litvak makes no argument that this court should grant a new trial, apart from those addressed and dispensed with above. None of the circumstances Litvak identifies qualify as "extraordinary," warranting a new trial. Moreover, having examined the record, this court concludes that no such circumstances are present in this case: the jury’s verdict is sufficiently supported by the evidence, and no manifest injustice would GA164 Case 3:13-cr-00019-JCH Document 533 Filed 04/17/17 Page 28 of 28 result from allowing the jury’s verdict to stand. Therefore, Litvak’s Motion for a New Trial is denied. V. CONCLUSION For the reasons set forth in detail above, Litvak’s Motion for a Judgment of Acquittal or, in the Alternative, for a New Trial (Doc. No. 516) is DENIED. SO ORDERED. Dated at New Haven, Connecticut, this 17th day of April, 2017. __/s/Janet C. Hall________ Janet C. Hall United States District Judge GA165 763 1 UNITED STATES DISTRICT COURT 2 DISTRICT OF CONNECTICUT 3 ___________________________ United States of America)February 21, 2014 4 Government)9:22 a.m. v.) 5 Jesse C. Litvak)3:13cr19(JCH) Defendant.) 6 ___________________________) 7 141 Church Street 8 New Haven, Connecticut 9 DAY FOUR OF TRIAL 10 B E F O R E: 11 THE HONORABLE JANET C. HALL, U.S.D.J. AND JURY OF 16 12 13 A P P E A R A N C E S: 14 For The Government: Jonathan N. Francis Eric Glover 15 U.S. Attorney's Office-NH 157 Church St., 23rd floor 16 New Haven, CT 06510 17 For the Defendant: 18 Michael Chase Shipman & Goodwin 19 One Constitution Plaza Hartford, CT 06103-1919 20 Patrick Smith 21 Sarah B. Zimmer John Michael Hillebrecht 22 DLA Piper US LLP-NY 1251 Avenue of the Americas, 23 27th Floor New York, NY 10020-1104 24 25 GA166 917 1 MR. HILLEBRECHT: As I sit here now, your Honor, I 2 would say about 20 minutes, but, as usual, we're going to go 3 back and see if we can cut. 4 THE COURT: Okay. 5 MR. HILLEBRECHT: My fellows might have some bright 6 ideas that adds a little, I don't know. But right now, about 7 15, 20 minutes. 8 MR. GLOVER: That's helpful. 9 THE COURT: All right. Anything else? 10 You are excused, sir, but you need to be back here 11 in the courtroom at 2:00 o'clock. Thank you very much. 12 We'll stand in recess. 13 (Whereupon, a recess was taken.) 14 THE COURT: Please be seated. If you can come back 15 up to the witness, Mr. Norris. 16 (In the presence of the jury.) 17 THE COURT: Welcome back, ladies and gentlemen. 18 We're ready for our afternoon session and whenever you are 19 ready, Mr. Hillebrecht. 20 BY MR. HILLEBRECHT: 21 Q. Mr. Norris, thanks for coming back. Just another 22 few minutes. Mr. McLoud, if we can display Government's 23 Exhibit 43 in evidence please. Mr. Norris, you were shown 24 this before. I will show you a few portions of it again and 25 ask you some questions about them. This one to orient you it GA167 918 1 the SARM bond. You put in the original bid of 79.24 and told 2 Mr. Litvak you had room, right. 3 A. Yes. 4 Q. You ended up paying 79-30 for that bond, correct? 5 A. Yes. 6 Q. There's a reply after you give your initial bid, 7 right, and you testified on direct. Using BRB. BRB is be 8 right back, right? 9 A. Yes. 10 Q. You testified about your understanding of what Jesse 11 meant by that "using" there, correct? 12 A. Yes. 13 Q. And you agree with me, right, he doesn't say there 14 or anywhere else in this that he was going to submit a bid of 15 79-24? 16 A. He said it right there. 17 Q. Explicitly say I will bid 79-24? 18 A. It doesn't explicitly say that. It was implied. 19 Q. You tell him after that, that we've got some room, 20 right? 21 A. Yes. 22 Q. In terms of who at Jefferies was actually 23 negotiating with the counterparty on this transaction? 24 A. The seller. 25 Q. Correct. The party is going to sell to Jefferies GA168 919 1 and Jefferies sells to you, right? 2 A. Right. 3 Q. You have no idea who in Jefferies was actually 4 communicating with the seller, do you? 5 A. Correct. 6 Q. When Mr. Litvak says "using" here, it is entirely 7 possible that he asked one of the salespeople assigned to the 8 selling account to communicate with that account? 9 MR. GLOVER: Objection. Calls for speculation. 10 THE COURT: Sustained. 11 Q. I think you testified that there's traders like Mr. 12 Litvak and then there's salespeople who interact with 13 counterparties, right? 14 A. Yes. 15 Q. In fact, you mentioned Mark Defife who covered you? 16 A. Yes. 17 Q. Your offer, right? 18 A. Yes. 19 Q. Are you familiar with a fellow named Kevin Blaney 20 who covered Goldman Sachs Asset Management? 21 A. I do not know Mr. Blaney, no. 22 Q. You are familiar with the fact that Jefferies has 23 salespeople assigned to individual accounts who often 24 interact with the individual accounts when the traders too 25 busy, right? GA169 920 1 A. Yes. 2 Q. If we look briefly at Defendant's Exhibit 620D, as 3 in dog, that's in evidence. Zoom in on the yield tables one 4 last time now. You just reminded me, sir, that you 5 ultimately ended up paying on this bond a price of 79-30, 6 correct? 7 A. Yes. 8 Q. And as we saw before, when you are calculating yield 9 potential, profit potential, you calculate it in full dollar 10 increments, correct? 11 A. For this particular bond we did, yes. 12 Q. So 79-30, I think I got this right, is somewhere 13 between 79 and 80, correct? 14 A. Yes. 15 Q. So the yield between 79 and 30 would be somewhere 16 7.24 and 7.55. Have I got that right? 17 A. Yes. 18 Q. Both of those are well above your 7 percent 19 threshold, right? 20 A. They are above it, yes. 21 Q. Conducting all your due diligence on the day of this 22 trade for that bond, this bond was not available to you at a 23 better price than the bond at which you bought it, right? 24 A. Not that I'm aware of at this point. 25 Q. If you had been aware of the lower price, you would GA170 921 1 have bought it at a lower price, right? 2 A. Right. It is possible this bond was offered on an 3 inventory away from this list, and we may have attempted to 4 purchase it there as well so basically we try to buy the bond 5 as cheaply as we can wherever it is so. 6 Q. By the fact that you know having looked at the 7 document that you indeed on this day bought this bond at a 8 price of 79-30? 9 A. Yes. 10 Q. Would you agree with me there was no comparable 11 substitute bond available at a lower price? 12 A. I can't say that at this point. This exact piece of 13 this bond at the time I believe 79-30 was the price we had to 14 pay to purchase it. Like I said, there's comparable bonds 15 all over the place that we try to buy. We weren't 16 necessarily--we weren't saying we're going to buy this one 17 bond and that's it for today. We were trying to buy as many 18 as we could. 19 Q. Okay. I'm not suggesting anything to the contrary. 20 I'm not suggesting you didn't purchase comparable bonds. I'm 21 saying you paid 79-30 because it was the best price available 22 to fill the need you saw, right? 23 A. At the time we believed so, yes. 24 Q. Again similar questions I asked about the other 25 bond, at the time you made the decision to buy the bond at GA171 922 1 79-30, you believe the bond was a smart investment decision 2 for Invesco and the PPIF Fund, right? 3 A. At the time of the trade, yes. 4 Q. Focusing on the economics of the trade, potential 5 yield and profit, nothing about Jesse's tactics or what he 6 said to you changed the economics of buying that bond at 7 79-30 on that day, right? 8 A. At 79-30 the investment analysis was the same. 9 Q. The investment analysis and the economics of the 10 deal were not changed in any way by learning later that 11 Jefferies may have made a larger amount of profit than you 12 understood, right? 13 A. We would argue that we should have been able to buy 14 the bond cheaper. 15 Q. That's a hypothetical, right? That's not what 16 happened, right? 17 A. Well, we didn't know, right, we don't know--18 obviously we didn't know at the time how much Jefferies was 19 making on the trade. 20 Q. But you knew how much you were paying, right? You 21 knew you were paying 79-30? 22 A. Yes. 23 Q. And you knew what you were getting, right? 24 A. Yes. 25 Q. My question is the fact that you later learned GA172 923 1 additional information didn't change the economics of the 2 deal at the price of 79-30? 3 MR. GLOVER: Objection. Asked and answered. 4 THE COURT: Sustained. 5 Q. You would agree with me, wouldn't you, that nothing 6 that Jesse said that day affected the nature or quality of 7 the bond of the purchased? 8 MR. GLOVER: Asked and answered. 9 THE COURT: Sustained. 10 MR. HILLEBRECHT I have not asked this question about 11 this bond. I asked the same question about the other bond. 12 THE COURT: It will take me longer to confirm which 13 of us is right so I'll allow him to answer but I'm pretty 14 sure I heard this question about this bond but you may 15 answer. 16 A. Repeat the question. 17 Q. Nothing that Jesse said to you that day affected the 18 nature or quality of the bond you were buying, right? 19 A. Correct. 20 Q. In 2010 for the PPIF Fund, what was the total 21 invested value of the fund? 22 A. I don't have that recollection. I know from memory 23 that at some point during its existence it got to slightly 24 over 2 billion, but I don't know about in 2010 in 25 particular. GA173

REPLY TO OPPOSITION [{{33}}], on behalf of Appellant Jesse C. Litvak, FILED. Service date 07/24/2017 by CM/ECF.[2084819][38] [17-1464] [Entered: 07/24/2017 03:59 PM]

17-1464 In the United States Court of Appeals for the Second Circuit UNITED STATES OF AMERICA, APPELLEE v. JESSE C. LITVAK, DEFENDANT-APPELLANT ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT (CRIM. NO. 13-19) (THE HONORABLE JANET C. HALL, C.J.) REPLY IN SUPPORT OF MOTION FOR RELEASE PENDING APPEAL KANNON K. SHANMUGAM DANE H. BUTSWINKAS ALLISON JONES RUSHING MENG JIA YANG* WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 * Admitted in California and practicing law in the District of Columbia pending application for admission to the D.C. Bar under the supervision of bar members pursuant to D.C. Court of Appeals Rule 49(c)(8). TABLE OF CONTENTS Page Introduction.............................................................................................................. 1 Argument.................................................................................................................. 2 A. Materiality........................................................................................... 3 1. Insufficient evidence of materiality on Count 4.................... 3 2. Immateriality as a matter of law............................................. 6 B. Evidentiary rulings............................................................................. 8 1. Admission of'agency’ testimony............................................. 9 2. Exclusion of evidence of industry practice.......................... 10 Conclusion...............................................................................................................12 TABLE OF AUTHORITIES CASES City of Pontiac Policemen’s and Firemen’s Retirement System v. UBS AG, 752 F.3d 173 (2d Cir. 2014)........................................................... 4 Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir. 1996).................................................................................. 7 United States v. Certified Environmental Services, Inc., 753 F.3d 72 (2d Cir. 2014)................................................................................ 10 United States v. Randell, 761 F.2d 122 (2d Cir. 1985)........................................ 1 United States v. Weimert, 819 F.3d 351 (7th Cir. 2016)...................................... 8 INTRODUCTION The government does not contest two of the four statutory factors for determining whether Mr. Litvak is entitled to continued release pending ap-peal. Specifically, the government does not dispute that Mr. Litvak poses no risk of flight or danger to the community and that this appeal is not for the purpose of delay. Nor does the government dispute that, unless this motion is granted, Mr. Litvak will have served much, if not all, of his 24-month sentence by the time the Court decides his appeal. The only point of contention is whether this appeal, like Mr. Litvak’s previous appeal, raises a substantial question likely to result in reversal or a new trial. On that point, the government’s counter-narrative of the facts and alternative view of the law serve only to confirm that this appeal raises multi-ple "close" or "fairly debatable" questions. United States v. Randell, 761 F.2d 122, 125 (2d Cir. 1985) (internal quotation marks and citations omitted). The government has failed to present sufficient evidence of materiality on Count 4, to support its theory of materiality as a matter of law, or to justify the dis-trict court’s erroneous evidentiary rulings. Because there can be no serious doubt that each of those questions is substantial, and because the other re-quirements for continued release are indisputably satisfied, Mr. Litvak’s mo-tion should be granted. 1 ARGUMENT The government’s opposition reads as though it has forgotten that this Court reversed Mr. Litvak’s prior convictions; that a new trial occurred; and that Mr. Litvak was acquitted on nine of ten counts at the second trial. See, e.g., Opp. 1 (accusing Mr. Litvak of "perpetrat[ing] a multi-year, multi-victim, multi-million dollar scheme to defraud customers"). All that remains of the government’s case is a conviction on Count 4, based on a single transaction. As to that transaction, it is undisputed that Mr. Norris opened his nego-tiation with Mr. Litvak by identifying the bond he wanted and declaring the price he was willing to pay. See Mot. 6-7. It is undisputed that Mr. Norris paid exactly the price he had expected for exactly that bond, which his employer, Invesco, had independently determined to be a good one. See id. And it is undisputed that Mr. Litvak’s misstatement in no way affected Invesco’s deci-sion to invest. See id. What Mr. Norris testified did affect him was his incorrect belief that Mr. Litvak was acting as his agent in the transaction. See Mot. 7. Although the government now concedes that this characterization of Mr. Litvak’s role was incorrect as a matter of law, see Opp. 6 n.4, it continues to advance the contra-dictory assertion that evidence concerning that characterization was admissi-ble to prove what an objectively reasonable investor would have thought. The 2 government’s arguments simply underscore that the district court’s material-ity and evidentiary errors raise substantial questions for appeal. A. Materiality 1. Insufficient Evidence of Materiality on Count 4 There is a substantial question whether the evidence was sufficient to prove that the misrepresentation at issue in Count 4 was material. In contend-ing that the question is not substantial, the government ignores the undisputed facts concerning the underlying transaction. Mr. Norris approached Mr. Lit-vak to bid on a particular bond that was available that day in an auction. See Mot. 6. Mr. Norris could have allowed Mr. Litvak to determine the appropri-ate bid. Instead, he specifically told Mr. Litvak that Invesco could bid 79-24 and potentially more, while assuming that Invesco would pay six ticks above the bid for a total price of 79-30. A163-164. By specifying a bid, Mr. Norris was revealing Invesco’s reservation price to his counterparty: namely, that Invesco was willing to pay 79-30. See Mot. 6-7; A146. At the time of the transaction, Mr. Norris’s approach to the negotiation showed that Invesco was primarily interested in winning the bond at auction, not in getting the cheapest price from Jefferies. And if, in the end, Mr. Norris had thought the total price was too high in relation to the bond’s value, he could 3 simply have walked away. But that was not what happened: Mr. Norris pur-chased the bond for precisely the total price he had expected to pay, a price that put Invesco "comfortably within [its] yield target." A169; see Mot. 11. All the government offers in response is Mr. Norris’s testimony that he deemed Mr. Litvak’s misstatement "important" in hindsight. See Opp. 10-11. As this Court has clarified, however, "while importance is undoubtedly a nec-essary element of materiality, importance and materiality are not synony-mous." City of Pontiac Policemen’s and Firemen’s Retirement System v. UBS AG, 752 F.3d 173, 185 (2d Cir. 2014). The government appears to be suggesting that Mr. Litvak’s misstatement was material simply because Mr. Norris would have negotiated for a lower price if he had known Jefferies’ true profit margin. See Opp. 12-13. But that is tantamount to arguing that any fact useful to a counterparty in negotiation is material and must be disclosed. That is plainly not the law. To compensate for its meager evidence on Count 4, the government points to the testimony of other fund managers, similarly given in hindsight, on the "importance" of Mr. Litvak’s statements. See Opp. 12. Notably, how-ever, the jury acquitted on all of the remaining counts despite that testimony. 4 What sets Count 4 apart from those counts is Mr. Norris’s failure to under-stand the objective fact that the trade was an arm’s-length, principal-to-prin-cipal transaction.1 The government eventually acknowledges that Mr. Norris’s misunder-standing of Mr. Litvak’s role was a "contributing factor" to his decision to "be-lieve and act in reliance on [Mr.] Litvak’s statements." Opp. 11. In the gov-ernment’s view, Mr. Litvak’s misstatement that he submitted a bid of 79-24 was nevertheless material because it led Mr. Norris to pay a six-tick commis-sion on top of that amount, for a total price of 79-30. See Opp. 11, 15. Leaving aside the fact that Mr. Norris had expected to pay that total price all along, the government’s argument critically depends on two aspects of Mr. Norris’s subjective confusion. First, Mr. Norris erroneously believed that Mr. Litvak, acting as his agent, was earning a commission on top of Jefferies’ purchase price. See, e.g., A147-148. In reality, Jefferies was a principal making a profit by buying the bond at auction and reselling it to Invesco at a higher price; as in any other arm’s-length transaction, there was no separate negotiation over Jefferies’ profit margin. See A229. 1 The government says it has "always acknowledged" Mr. Litvak’s role as a principal in the relevant trades. Opp. 6 n.4. That is flat-out false. The govern-ment compared Mr. Litvak to a real-estate agent at the first trial; tried to do so again during oral argument in the first appeal; and ultimately was forced to concede its error before this Court. See 808 F.3d 160, 187 n.32 (2d Cir. 2015). 5 Second, as he acknowledged at trial, Mr. Norris took Mr. Litvak’s stated purchase price as the baseline for negotiation only because he believed Mr. Litvak was obligated to tell him the truth as his agent. See A204-205. There-fore, to the extent that the misstatement was subjectively "important" to Mr. Norris, it was only because he saw Mr. Litvak as his agent. The government has not shown that a reasonable investor would have held the same miscon-ception. Without such a showing, Mr. Norris’s testimony that he deemed Mr. Litvak’s misstatement "important" in hindsight is irrelevant to the materiality inquiry. And the government points to no other evidence on that issue. At a minimum, there is a substantial question whether the government’s evidence of materiality on Count 4 was sufficient. 2. Immateriality as a Matter of Law There is also a substantial question whether misstatements such as Mr. Litvak’s could be material as a matter of law. The government argues that materiality as a matter of law was decided in the first appeal and cannot now be a substantial question. See Opp. 13-14. But in its previous decision, this Court made clear that its ruling on materiality was based "on the trial record before [it]" at the time. 808 F.3d 160, 175 (2d Cir. 2015). The Court in no way foreclosed a different conclusion based on the record from a new trial. Instead of articulating why Mr. Litvak’s misstatements could have been material to a reasonable investor or identifying any precedent affirmatively 6 supporting its position, the government simply parrots the same distinctions between this case and Feinman v. Dean Witter Reynolds, Inc., 84 F.3d 539 (2d Cir. 1996), set out in passing in the Court’s previous opinion. See Opp. 14-16. But none of those distinctions affects the application of Feinman’s reason-ing on materiality: * First, the government asserts that Mr. Litvak’s misstatement was intended to increase the counterparty’s purchase price. See Opp. 15. In fact, the misstatements in both cases centered on a compo-nent of the total transaction price: the brokers in Feinman charged fees that overstated the true cost of handling trades, whereas Mr. Litvak stated a purchase price that was higher than what Jefferies had actually paid. See Feinman, 84 F.3d at 540. * Second, the government asserts that the profit from Mr. Litvak’s misstatement was larger. See Opp. 15-16. But the "dollar or two" pocketed by the brokers in Feinman must be understood in rela-tive rather than absolute terms. 84 F.3d at 541. A few dollars relative to the expected earnings on a single trade on the stock market is analogous to a few ticks relative to the expected yields from a RMBS held as a long-term investment. See A171-172. * Third, the government asserts that the opacity of the RMBS mar-ket precluded the kind of competition among firms discussed in Feinman. See Opp. 16. But that is simply wrong, especially with respect to "bid wanted in competition" trades like the one at issue in Count 4. Invesco could have approached a different firm to bid on the bond it wanted, and, like the investors in Feinman, it could have walked away from the transaction if it was unwilling to accept the price Jefferies offered. See A164, 169. The government fares no better in trying to distinguish United States v. Weimert, 819 F.3d 351 (7th Cir. 2016)—a case decided after the previous ap-peal in this case that echoes Feinman’s logic. See Opp. 14 n.5. There, the 7 president of a company convinced his board of directors that a proposed deal to acquire the company’s assets could not proceed without his participation, which led the company to pay him a bonus. See Weimert, 819 F.3d at 363-364. In reversing the president’s fraud conviction, the Seventh Circuit noted that he did not mislead the company "as to the nature of the asset it was selling or the consideration it received." Id. at 366. The court concluded that the com-pany "might have been able to secure a better deal if it had known the under-lying priorities of prospective buyers and [the president], but that is... a matter for the corporate boardroom and civil law, not a federal criminal trial." Id. at 370. So too here: Mr. Litvak did not misrepresent the nature or quality of the bond or the total final price, the essential elements of the deal. His mis-statement related only to Jefferies’ negotiating position. If allowed to stand, the decision in this case will set the baseline for ma-teriality so low as to sweep all kinds of ordinary negotiation tactics deployed by sophisticated parties into the ambit of criminal securities fraud. The ques-tion whether misstatements such as Mr. Litvak’s are material as a matter of law is therefore both substantial and enormously consequential. B. Evidentiary Rulings Each of the district court’s erroneous evidentiary rulings raises a sub-stantial question for appeal that would require vacatur of Mr. Litvak’s convic-tion. 8 1. Admission of'Agency’ Testimony The government argues that evidence about whether the counterparties thought that Mr. Litvak was acting as their agent "was probative as to what an objectively reasonable investor would have thought," even as it admits that, "[a]s a legal matter, Jefferies acted as principal." Opp. 6 n.4, 18. That contra-diction is precisely why testimony about Jefferies’ supposed "agency" was in-admissible—it was objectively incorrect, and only an unreasonable investor would have thought otherwise. By admitting the government’s evidence de-scribing a nonexistent agency relationship, the district court risked confusing the jury into thinking that these were not arm’s-length transactions and that the counterparties were entitled to accord special weight to Mr. Litvak’s state-ments. The supposed curative measures noted by the government all depend on the lay juror’s ability to distinguish between the reality of the arm’s-length relationship and the counterparties’ perception. See Opp. 18-19. Even if a lay juror could make that distinction, moreover, a particular fund manager’s mis-perception is still irrelevant without a showing that it was reasonable. And the jury likely was actually confused: Mr. Norris’s testimony about the purported agency relationship is by far the most probable explanation for why the jury convicted only on Count 4, when the government (by its own concession) oth-erwise presented "uniform victim testimony" on all counts. Opp. 12. 9 2. Exclusion of Evidence of Industry Practice As for the evidence that misstatements such as Mr. Litvak’s were per-vasive in the industry, the government does not dispute that the evidence has the "incremental effect" required for relevance. United States v. Certified En-vironmental Services, Inc., 753 F.3d 72, 90 (2d Cir. 2014) (internal quotation marks and citation omitted). That evidence would have tended to show that counterparties knew about the widespread practice and discounted state-ments from broker-dealers accordingly. While the government contends the exclusion was harmless, the expert testimony it quotes concerned distinct is-sues and thus cannot compensate for the district court’s error. See Opp. 21. * * * * * The issues Mr. Litvak intends to raise on appeal have arisen again and again in similar prosecutions targeting bond traders. Two such cases are pending in the District of Connecticut alone, one of which has proceeded through trial.2 The Court’s decision in this case will affect the outcome of those and other ongoing cases. In addition, at least two defendants facing similar charges have entered into plea agreements that expressly reserve their right to withdraw their guilty pleas should this Court hold that Mr. Litvak’s conduct 2 See Indictment, United States v. Demos, Crim. No. 16-220 (D. Conn. 2016); Indictment, United States v. Shapiro, Crim. No. 15-155 (D. Conn. 2015). 10 did not constitute securities fraud.3 Those unusual provisions highlight the close and difficult questions raised by such cases, of which Mr. Litvak’s is the first. Given all of the foregoing considerations, it is frankly puzzling why the government is fighting so hard to deny Mr. Litvak continued release pending this Court’s review. Only a scrap of the government’s original case against Mr. Litvak remains. As it did on his previous appeal, this Court should grant Mr. Litvak release to ensure that he has a meaningful opportunity to raise his substantial arguments before this Court without first serving all or most of his sentence.4 3 See Plea Agreement, United States v. Katke, Crim. No. 15-38, at 1 (D. Conn. 2015); Plea Agreement, United States v. Siegel, Crim. No. 15-231, at 1-2 (D. Conn. 2015). 4 The government has not opposed Mr. Litvak’s request that his surrender date be stayed if this motion cannot be decided before September 12, 2017. See Mot. 1 n.1. 11 CONCLUSION The motion for release pending appeal should be granted. Respectfully submitted,/s/Kannon K. Shanmugam KANNON K. SHANMUGAM DANE H. BUTSWINKAS ALLISON JONES RUSHING MENG JIA YANG* WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 JULY 24, 2017 * Admitted in California and practicing law in the District of Columbia pending application for admission to the D.C. Bar under the supervision of bar members pursuant to D.C. Court of Appeals Rule 49(c)(8). 12 CERTIFICATE OF COMPLIANCE WITH TYPEFACE AND WORD-COUNT LIMITATIONS I, Kannon K. Shanmugam, counsel for appellant and a member of the Bar of this Court, certify, pursuant to Federal Rule of Appellate Procedure 27(d), that the attached Reply in Support of Motion for Release Pending Ap-peal is proportionately spaced, has a typeface of 14 points or more, and con-tains 2,567 words./S/Kannon K. Shanmugam KANNON K. SHANMUGAM JULY 24, 2017 CERTIFICATE OF SERVICE I, Kannon K. Shanmugam, counsel for appellant Jesse C. Litvak and a member of the Bar of this Court, certify that, on July 24, 2017, a copy of the attached Reply In Support of Motion for Release Pending Appeal was filed with the Clerk and served on the parties through the Court’s electronic filing system. I further certify that all parties required to be served have been served./S/KANNON K. SHANMUGAM KANNON K. SHANMUGAM

MOTION ORDER, denying motion for bail [{{24}}] filed by Appellant Jesse C. Litvak, The appeal is hereby expedited by JMW, JAC,RR, FILED. [2107493][46] [17-1464] [Entered: 08/22/2017 02:47 PM]

D. Conn. 3:13cr19 Hall, J. United States Court of Appeals FOR THE SECOND CIRCUIT At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 22nd day of August, two thousand seventeen. PRESENT: John M. Walker, Jr., José A. Cabranes, Reena Raggi, Circuit Judges. United States of America, Appellee, ORDER v. 17-1464-cr Jesse C. Litvak, Defendant-Appellant. Defendant-Appellant has filed a motion for bail pending appeal. Upon due consideration, it is hereby ORDERED that the motion is DENIED. The appeal is hereby EXPEDITED. The Government’s brief shall be due no later than 45 days after the filing of the Defendant-Appellant’s brief and the Defendant-Appellant’s reply brief shall be due no later than 15 days after the filing of the Government’s brief. Furthermore, the Clerk is directed to place this case on the Day Calendar of the next panel available 30 days after the reply brief is filed. FOR THE COURT: Catherine O’Hagan Wolfe, Clerk

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1
05/03/2017
NOTICE OF CRIMINAL APPEAL, with district court docket, on behalf of Appellant Jesse C. Litvak, FILED. [2028087] [17-1464] [Entered: 05/05/2017 01:13 PM]
2
05/03/2017
DISTRICT COURT JUDGMENT, dated 04/26/2017, RECEIVED.[2028092] [17-1464] [Entered: 05/05/2017 01:15 PM]
3
05/03/2017
ELECTRONIC INDEX, in lieu of record, FILED.[2028093] [17-1464] [Entered: 05/05/2017 01:16 PM]
5
05/05/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellee USA United States of America, FILED. Service date 05/05/2017 by CM/ECF. [2028492] [17-1464] [Entered: 05/05/2017 04:30 PM]
6
05/05/2017
ATTORNEY, Jonathan Francis for Appellee United States of America, in case 17-1464, [5], ADDED.[2028539] [17-1464] [Entered: 05/05/2017 04:58 PM]
7
05/05/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellee USA United States of America, FILED. Service date 05/05/2017 by CM/ECF. [2028545] [17-1464] [Entered: 05/05/2017 05:02 PM]
8
05/05/2017
ATTORNEY, Heather Cherry II for Appellee United States of America, in case 17-1464, [7], ADDED.[2028549] [17-1464] [Entered: 05/05/2017 05:05 PM]
9
05/05/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellee USA United States of America, FILED. Service date 05/05/2017 by CM/ECF. [2028562] [17-1464] [Entered: 05/05/2017 05:25 PM]
11
05/05/2017
PAYMENT OF DOCKETING FEE, on behalf of Appellant Jesse C. Litvak, district court receipt # CTXH00012436, FILED.[2031578] [17-1464] [Entered: 05/10/2017 11:31 AM]
10
05/08/2017
ATTORNEY, William Nardini for Appellee United States of America, in case 17-1464, [9], ADDED.[2029142] [17-1464] [Entered: 05/08/2017 01:26 PM]
12
05/16/2017
NOTICE OF APPEARANCE AS SUBSTITUTE COUNSEL, on behalf of Appellant Jesse C. Litvak, FILED. Service date 05/16/2017 by CM/ECF. [2036686] [17-1464] [Entered: 05/16/2017 04:02 PM]
13
05/16/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Jesse C. Litvak, FILED. Service date 05/16/2017 by CM/ECF. [2036691] [17-1464] [Entered: 05/16/2017 04:04 PM]
14
05/16/2017
ATTORNEY, Kannon K. Shanmugam, [12], in place of attorney Adam Harber, SUBSTITUTED.[2036741] [17-1464] [Entered: 05/16/2017 04:23 PM]
15
05/16/2017
ATTORNEY, Allison Jones Rushing for Appellant Jesse C. Litvak, in case 17-1464, [13], ADDED.[2036750] [17-1464] [Entered: 05/16/2017 04:25 PM]
16
05/16/2017
ACKNOWLEDGMENT AND NOTICE OF APPEARANCE, on behalf of Appellant Jesse C. Litvak, FILED. Service date 05/16/2017 by CM/ECF.[2036881] [17-1464] [Entered: 05/16/2017 05:45 PM]
18
05/25/2017
FORM B, on behalf of Appellant Jesse C. Litvak, FILED. Service date 05/25/2017 by CM/ECF.[2043795] [17-1464] [Entered: 05/25/2017 04:23 PM]
21
05/31/2017
NEW CASE MANAGER, Tiffany Campbell, ASSIGNED.[2047051] [17-1464] [Entered: 05/31/2017 02:19 PM]
22
06/07/2017
LR 31.2 SCHEDULING NOTIFICATION, on behalf of Appellant Jesse C. Litvak, informing Court of proposed due date 08/24/2017, RECEIVED. Service date 06/07/2017 by CM/ECF.[2053441] [17-1464] [Entered: 06/07/2017 04:53 PM]
23
06/08/2017
SO-ORDERED SCHEDULING NOTIFICATION, setting Appellant Jesse C. Litvak Brief due date as 08/24/2017. Joint Appendix due date as 08/24/2017, FILED.[2053670] [17-1464] [Entered: 06/08/2017 09:46 AM]
24
06/30/2017
MOTION, for bail, on behalf of Appellant Jesse C. Litvak, FILED. Service date 06/30/2017 by CM/ECF. [2070435] [17-1464] [Entered: 06/30/2017 04:30 PM]
28
07/06/2017
MOTION, to extend time, on behalf of Appellee USA United States of America, FILED. Service date 07/06/2017 by CM/ECF. [2072257] [17-1464] [Entered: 07/06/2017 02:36 PM]
33
07/17/2017
OPPOSITION TO, for bail [24], on behalf of Appellee USA United States of America, FILED. Service date 07/17/2017 by CM/ECF. [2080463] [17-1464] [Entered: 07/17/2017 06:01 PM]
38
07/24/2017
REPLY TO OPPOSITION [33], on behalf of Appellant Jesse C. Litvak, FILED. Service date 07/24/2017 by CM/ECF.[2084819][38] [17-1464] [Entered: 07/24/2017 03:59 PM]
41
08/10/2017
SUBMITTED NOTICE, to attorneys/parties, TRANSMITTED.[2097895] [17-1464] [Entered: 08/10/2017 03:04 PM]
42
08/11/2017
SEALED PRE-SENTENCE REPORT, ADDENDUMS TO PSR, AMENDED PSR's and SOR on behalf of, Jesse C. Litvak RECEIVED.[2098556] [17-1464] [Entered: 08/11/2017 11:37 AM]
46
08/22/2017
MOTION ORDER, denying motion for bail [24] filed by Appellant Jesse C. Litvak, The appeal is hereby expedited by JMW, JAC,RR, FILED. [2107493][46] [17-1464] [Entered: 08/22/2017 02:47 PM]
47
08/22/2017
EXPEDITED SCHEDULING ORDER re: Appellee Brief due date as 10/10/2017, Appellant reply brief due date as 10/24/2017 FILED.[2107504] [17-1464] [Entered: 08/22/2017 02:57 PM]
50
08/23/2017
MOTION ORDER, denying motion to extend time to file opposition to Appellant's motion for bail pending appeal as moot [28] filed by Appellee USA United States of America, FILED. [2108313][50] [17-1464] [Entered: 08/23/2017 11:33 AM]
51
08/24/2017
BRIEF & SPECIAL APPENDIX, on behalf of Appellant Jesse C. Litvak, FILED. Service date 08/24/2017 by 3rd party, CM/ECF. [2109781] [17-1464] [Entered: 08/24/2017 05:16 PM]
52
08/24/2017
JOINT APPENDIX, volume 1 of 6, (pp. 1-288), on behalf of Appellant Jesse C. Litvak, FILED. Service date 08/24/2017 by 3rd party, CM/ECF.[2109789] [17-1464] [Entered: 08/24/2017 05:27 PM]
53
08/24/2017
JOINT APPENDIX, volume 2 of 6, (pp. 289-576), on behalf of Appellant Jesse C. Litvak, FILED. Service date 08/24/2017 by 3rd party, CM/ECF.[2109792] [17-1464] [Entered: 08/24/2017 05:28 PM]
54
08/24/2017
JOINT APPENDIX, volume 3 of 6, (pp. 577-864), on behalf of Appellant Jesse C. Litvak, FILED. Service date 08/24/2017 by 3rd party, CM/ECF.[2109796] [17-1464] [Entered: 08/24/2017 05:30 PM]
55
08/24/2017
JOINT APPENDIX, volume 4 of 6, (pp. 865-1152), on behalf of Appellant Jesse C. Litvak, FILED. Service date 08/24/2017 by 3rd party, CM/ECF.[2109799] [17-1464] [Entered: 08/24/2017 05:32 PM]
56
08/24/2017
JOINT APPENDIX, volume 5 of 6, (pp. 1153-1440), on behalf of Appellant Jesse C. Litvak, FILED. Service date 08/24/2017 by 3rd party, CM/ECF.[2109800] [17-1464] [Entered: 08/24/2017 05:33 PM]
57
08/24/2017
JOINT APPENDIX, volume 6 of 6, (pp. 1441-1518), on behalf of Appellant Jesse C. Litvak, FILED. Service date 08/24/2017 by 3rd party, CM/ECF.[2109802] [17-1464] [Entered: 08/24/2017 05:35 PM]
58
08/25/2017
NOTICE OF APPEARANCE AS ADDITIONAL COUNSEL, on behalf of Appellant Jesse C. Litvak, FILED. Service date 08/25/2017 by CM/ECF. [2109911] [17-1464] [Entered: 08/25/2017 09:15 AM]
59
08/25/2017
ATTORNEY, Masha Hansford for Jesse C. Litvak, in case 17-1464, [58], ADDED.[2110027] [17-1464] [Entered: 08/25/2017 10:13 AM]
66
10/03/2017
CASE CALENDARING, for the week of 12/11/2017, Panel A, PROPOSED.[2139166] [17-1464] [Entered: 10/03/2017 03:45 PM]
67
10/10/2017
BRIEF, on behalf of Appellee USA United States of America, FILED. Service date 10/10/2017 by CM/ECF. [2143544] [17-1464] [Entered: 10/10/2017 02:37 PM]
71
10/18/2017
CASE CALENDARING, for argument on 12/11/2017, A Panel, SET.[2150152] [17-1464] [Entered: 10/18/2017 09:59 AM]
72
10/20/2017
ARGUMENT NOTICE, to attorneys/parties, TRANSMITTED.[2152750] [17-1464] [Entered: 10/20/2017 11:34 AM]
73
10/24/2017
REPLY BRIEF, on behalf of Appellant Jesse C. Litvak, FILED. Service date 10/24/2017 by CM/ECF, US mail. [2155673] [17-1464] [Entered: 10/24/2017 04:49 PM]
74
10/24/2017
MOTION, to file supplemental appendix, on behalf of Appellant Jesse C. Litvak, FILED. Service date 10/24/2017 by CM/ECF. [2155689] [17-1464] [Entered: 10/24/2017 04:56 PM]
79
10/26/2017
MOTION ORDER, granting motion to file supplemental appendix. The supplemental appendix must be filed within seven days of the date of this order [74] filed by Appellant Jesse C. Litvak, FILED. [2157629][79] [17-1464] [Entered: 10/26/2017 02:50 PM]
80
10/26/2017
ORAL ARGUMENT STATEMENT LR 34.1 (a), on behalf of filer Attorney Mr. Kannon K. Shanmugam, Esq. for Appellant Jesse C. Litvak, FILED. Service date 10/26/2017 by CM/ECF. [2158026] [17-1464] [Entered: 10/26/2017 10:31 PM]
81
10/27/2017
ORAL ARGUMENT STATEMENT LR 34.1 (a), on behalf of filer Attorney Jonathan Francis for Appellee USA United States of America, FILED. Service date 10/27/2017 by CM/ECF. [2158190] [17-1464] [Entered: 10/27/2017 09:35 AM]
82
10/27/2017
DEFECTIVE DOCUMENT, Oral Argument Statement (Notice of Hearing Date Acknowledgment), [80], on behalf of Appellant Jesse C. Litvak, FILED.[2158793] [17-1464] [Entered: 10/27/2017 02:13 PM]
83
10/27/2017
DEFECTIVE DOCUMENT, Oral Argument Statement (Notice of Hearing Date Acknowledgment), [81], on behalf of Appellee USA United States of America, FILED.[2158841] [17-1464] [Entered: 10/27/2017 02:37 PM]
84
10/27/2017
SUPPLEMENTAL APPENDIX, on behalf of Appellant Jesse C. Litvak, FILED. Service date 10/27/2017 by CM/ECF, US mail. [2159047] [17-1464] [Entered: 10/27/2017 03:57 PM]
85
10/30/2017
NOTICE OF HEARING DATE ACKNOWLEDGMENT, on behalf of Appellant Jesse C. Litvak, FILED. Service date 10/30/2017 by CM/ECF. [2159554] [17-1464] [Entered: 10/30/2017 10:57 AM]
86
10/30/2017
CURED DEFECTIVE Oral Argument Statement (Notice of Hearing Date Acknowledgment), [80], on behalf of Appellant Jesse C. Litvak, FILED.[2160193] [17-1464] [Entered: 10/30/2017 04:18 PM]
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