The trials of former mortgage-backed bonds trader Jesse Litvak are likely to go on, thanks to Thursday's decision of the U.S. Court of Appeals for the Second Circuit to overturn his second conviction.

The panel, composed of Circuit Judges Ralph Winter, Denny Chin and U.S. District Judge Edward Korman of the Eastern District of New York, sitting by designation, agreed with Litvak that the Connecticut district court erred in allowing the jury to hear the testimony of a bond buyer who misstated the nature of the relationship he had with Litvak. The transaction the buyer was involved in was tied to the sole fraud count Litvak was convicted of during his second criminal trial in 2017.

The panel's vacating of Litvak's conviction is the second time the appellate court has now sent the case back to U.S. District Chief Judge Janet Hall for a retrial. Litvak's earlier conviction on 10 counts of securities and other fraud, as well as false statements, was overturned by the Second Circuit in 2015.

During the appeal of the first conviction, the panel raised the issue that would bedevil the government in the second appeal. The panel noted then that whether Litvak was operating as an agent for a bond buyer would be important because it could change the jury's view of the reasonable investor question at the core of the securities fraud charges.

As the panel noted, it is undisputed that Litvak was not the agent of Invesco bond buyer Brian Norris. Yet Norris testified that, from his point of view, Litvak was acting on his behalf when he purchased the $23 million mortgaged-backed bond. Litvak did not tell Norris that the price Invesco was paying was actually more than he himself secured the bond at, creating a profit for himself of over $70,000 in the transaction.

The district court even instructed the jury that Litvak was not Invesco's agent, and the government stated during summation that the agency issue was a “red herring.” However, since Norris' statements were intended to show how a reasonable investor would operate, the panel said there was a chance that the jury, hearing his incorrect statements, could have been swayed to convict based on them.

“Norris's testimony about a perceived agency relationship was the only rational reason for the jury to have convicted appellant on that [single] count of securities fraud while acquitting him on all other counts,” the panel stated.

Litvak was imprisoned while the appeal was pending. The court ordered him released on bond pending further proceedings. His attorney, Washington, D.C.-based Williams & Connolly partner Kannon Shanmugam, declined to comment on the decision.

A spokesman for the U.S. Attorney's Office for the District of Connecticut said the office was reviewing the decision.