Key takeaways

• On December 8, 2015, the First Circuit reversed the Securities and Exchange Commission’s Order in Flannery v. SEC and Hopkins v. SEC, which had found that two former State Street employees provided materially misleading information regarding a bond fund. The First Circuit concluded that the Commission’s Order was not supported by substantial evidence that the employees were responsible for any material misstatements.
• On the same day, the Second Circuit’s decision in United States v. Litvak vacated former Jefferies trader Jesse Litvak’s criminal conviction in the District of Connecticut for securities fraud, on the grounds that the lower court had exceeded its discretion by excluding testimony relevant to materiality and scienter.
• These significant rulings emphasize the government’s heavy burden in proving market-based securities fraud offenses, and indicate that federal courts will continue to closely analyze the government’s evidentiary showings in individual prosecutions.