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Expert Testimony on Industry Practice

By Jodi Misher Peikin and Rachel Agress

Late last year, the U.S. Court of Appeals for the Second Circuit, in United States v. Litvak, held that expert testimony regarding how a “specialized securities market” operated ' in this case, the Residential Mortgage-Backed Securities (RMBS) market ' was relevant and potentially “highly” probative of the question of whether the defendant's misstatements to investors were material. United States v. Litvak, 808 F.3d 160, 179, 182-84 (2d Cir. Dec. 8, 2015). Because juries are tasked with determining materiality ' i.e., whether there is “a substantial likelihood that a reasonable investor would find the ' misrepresentation important in making an investment decision” ( United States v. Vilar, 729 F.3d 62, 89 (2d Cir. 2013), cert. denied, ”' U.S. ””, 134 S.Ct. 2684, 189 L.Ed.2d 230 (2014)), the notion that experts can opine on overarching industry practice that is not case-specific, including that RMBS investment managers typically do not rely on representations (or misrepresentations) by broker-dealers, appears surprising.

In fact, however, a long line of Second Circuit cases dating back over 20 years have held that expert testimony of the type proffered in Litvak, relating to “ordinary practices in [an] industry,” can be probative of materiality where it “enable[s] the jury to evaluate a defendant's conduct against the standards of accepted practice,” so long as the testimony does not encompass an ultimate legal conclusion. United States v. Bilzerian, 926 F.2d 1285, 1295 (2d Cir. 1991); see also Marx & Co. v. Diners ' Club Inc., 550 F.2d 505, 509 (2d Cir. 1977), cert. denied, 434 U.S. 861, 98 S.Ct. 188, 54 L.Ed.2d 134 (1977) (finding that “[t]estimony concerning the ordinary practices of those engaged in securities business is admissible under the same theory as testimony concerning the ordinary practices of physicians or concerning other trade customs: to enable the jury to evaluate the conduct of the parties against the standards of ordinary practice in the industry.”).

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