of those findings are not supported by substantial evidence on the contrary when looking at the complete evidentiary record a contrary conclusion is warranted that there is no finding of materiality with respect to the one issue in the case which is what's been referred to as the typical slide and with respect to science or with the perspectives and state of mind why don't we start with so i am clear sure i'll start with say enter the the two are linked as this course court has recognized in the waters decision and some of that guides say ensure that these are these errors or materiality overlap into the science fair analysis first point the commission does not contend that mr hopkins intended to mislead anyone such a conclusion would be against the weight of all of the evidence developed in the record below evidence regarding mr hopkins character credibility findings of the  the lack of any motive and repeated instances in the record of mr hopkins providing accurate information about the limited duration on fund to investors when asked instead what the commission concluded is that mr hopkins must have known that the typical slide would mislead investors and recklessly disregarded that fact but a finding of recklessness requires much more than a showing of even negligent conduct or even extreme negligence as this court held in the rebel case recklessness requires proof that the omitted information was highly and reasonable amounting to an extreme departure from the standards of ordinary care and which presents a danger of misleading buyers or sellers either was known to the defendant or so obvious that the actor must have been aware of it that is a high bar and  have at least one investor who says i thought the information was an interior and i felt a little bit misled that i wasn't told the actual information as of the time that corresponded with the tip information yes your honor let me address that and that is you're hammerstein he was actually not an investor he was a consultant to an investor at national jewish medical center and the records show that mr hammerstein prior to the meeting in question which is november tenth two thousand and seven never asked anyone  state street concerning the allocation of various sectors in the limited duration bond fund and the record shows and the trip certainly that the division contended below that one of the items distributed to investors by state street were these fact sheets which actually disclosed the actual sector allocations on a quarterly basis we introduced evidence including e mails right to mr hammerstein identifying to him the fact where access could be had information on clients foreign or website and consultants corner website where information and storing portfolio holdings was available and that's why i said that the same answer was linked to the materiality analysis because what the commission did was look at the materiality in a vacuum and what they did and it's clear from looking at their brief is that they looked at the information is being material because they found that it altered the risk profile of the fund and they relied on one presidential case fundamental portfolio advisors and that was a case where the commission did concluded that there was a change in risk now what has happened here is the distinction was between what the typical portfolio allocation the slide when the sly was shown and what is intended to be the actual allocation knowing what the allocation of asset backed securities in the portfolio tells you nothing about risk it is a generic moniker and it could include of variety of securities for mortgages bad security security is backed by credit cards student loans auto loans and in fact just looking at what something is a vs tells you nothing about about risk at all and in fact what was in the record to the extent that mr hammerstein contended that he was concerned about risk that also was addressed in the in the typical slide accurately it identified the ratings of the various holdings in the fund and that was what was important for risk whether they were aaa or double a rated securities that is what somebody looks out to decide what is the risk of this portfolio if i look at a v s i don't know whether that contains a triple behave yes or ripple a a b s there would be no way to make a determination of risk based upon that and that's why i say that that's important to show that the materiality analysis was flawed and when you take that matur when looking at mr hopkins state of mind to mislead no one would think that somebody who is listening to a presentation regarding why the fines underperform specifically directed to it for pool be holding not certain how it's connected to the findings canst your particular client but if they suggest that state street had differing interests here including that many of state street own bond funds had invested and this particular fund and that state street was well where th deprived of this right well let me just address that your honor what the undisputed testimony at the trial was that as of may tenth two thousand and seven which is the day that the typical slide was alleged to be presented that nobody at state street knew that this crisis was coming the whole reason for the may tenth meeting was just to explain a lift in this triple the eighty x this traunch and it was believed to be the result of hedge fund activity there is there is no testimony in the record that anybody recognized that the crisis that would occur in june and july was something that you know was going to happen as  maggie certainly was no evidence that mr hopkins was aware and in fact we had eric syria our expert who testified about the development of this crisis the timing of it and so whatever the chronology of state street what they were telling their investors there isn't any evidence in the record that anybody was being told as of may to move out of the limited duration bond fund that there were any problems with the funding to the contrary in the two months prior to may that triple be a v x problem that had occurred in february actually had rebounded and that the performance of that tranche of the fund had its best performance in those two month period so at the time there was nothing there were no storm clouds on the horizon and the sole purpose of this meeting was just to explain to an investor what had happened to the fund in february and that was the purpose that was there he wasn't there to try to sell for a limited direct on fund in fact the fund itself was a different fund it was the dow jones commodities fund that had a limited duration bond fund as part of the package to develop what's known as the alpha return of that fund so at the time there there is there is nothing that mr hopkins could have disclosed and i think as we pointed out in our brief this started when the the order instituting proceedings was brought as you didn't disclose about the sub product crisis you'll notice that in the recent and i think even in the commission's opinion there's really no mention of that it's now turn to well you didn't disclose the risk of the balancing of a v s in the portfolio and it's not even with respect to mr hopkins about below it was an exhibit was an example or an example of typical and you know the question is typical what's the horizon this is a fund that was started in two thousand and two there is no evidence in the record as to the life of the fund what is the typical portfolio allocation what the the important part of it is what was also on the right hand side of the typical slide which shows the breakdown of credits by quality which is what everybody testified they wanted to know think there was anything introduced in the record that as to what the allocation was on the fifth what was introduced were fact sheet showing the allocation varying going sixt eighty's at one point there was an allegation it was one hundred and then in june it was eighty percent so i don't think as of may tenth there is anything in the record that says what the trading history was i saw your client typically came into paper there your your honor is correct with respect to other presentations in the testimony was that to the extent that anybody asked if you saw typical what's the what's the exposure today he would be able to as i s themselves he did not have a recollection with presentations of what he stated and the division did not call any investors at all to testify about any of these meetings so your honor we don't have a record of that we do have a record of a couple of instances where people asked for breakdown specific security level breakdown and that was information that mr hopkins provided which i think really odd years against a finding of slander  had no motive to hide anything he had no interest he certainly his reputation was not in any way to to withhold information from people and here certainly with respect to the fact sheets themselves  was the commission had to prove materiality because l j did not make a finding on materiality and as a result of that they had to cabin in the total mix of information available and they didn't do that they didn't indicate and prove that those fact sheets which they allege were distributed to clients actually were not distributed to anybody at any partners not just mr hammerstein or anybody at national jewish medical center so they don't even have the record as to what in fact was known in the marketplace and part of the total max and that's really what goes to the heart of both of materiality and the standard thank you thank you mr flannery was charged were accurate they were not misleading secondly he acted reasonably and as to both of those findings that the f c c made inconsistent with the findings of the administr who tried the case for eleven days there is no substantial evidence to the contrary and then third there's been a complete failure of proof as to the purported materiality found was that that was as the letter said an effort to reduce risk and as the expert testimony in this case and the head of risk management at state street patrick armstrong testified and as mr flannery believed it was a successful for to reduce risk the commission focused solely on the fact of its belief that  because the fond did not retain all of the cash that resulted from that sale that somehow the fund was more risky and in doing so the  that universal camera requires and it's the us that position that aaa bond position was funded by a roughly four hundred fifty million dollars of investor capital and one point percent and as the testimony shows that rob was the result of this contagion spreading to the higher rated bonds had there not been a sta fifty million dollars no mr simple mathematics and in terms of the investor capital which was four hundred fifty million because of the impact of leverage which amplifies both market movements positive or negative thirty three percent of the investor capital would be what would have been wiped away the fact is and the commission simply didn't address this at all the the administrative wogs judge credited that testimony because it quite obviously reduced risk at a bare minimum flannery acted reasonably  believing that that was the case and that and that that was the impact of the the transaction to not sell a portion of the b b b asin as well correct in has conceded the credit quality the credit rating was not respectful your honor to laugh with trash but what had been an average double a waiting before remand and double a itself indicates to me uses terms like crisis magnitude of risk not previously anticipated hardly phrases to dupe investors to remain the many judicious investors that he had expressed with a different opinion that you also believe which is it was accurate which is that in this storm when the price as he testified is the price when the price of liquidity is so h t many not all many judicious investors will choose to remain it defies logic to think that the institutional investors here could have been misled by that expression of belief that's clearly protected under the comic here case as to the suppose it had mission omissions here two points one the commission makes of march of the not any after an eleven day trial to show that the related fines that some other reason for were making that choice zero that's number one basters those were part of the total mix of information that was available to the investors thank you court is interested in the legal arguments raised by mr mr flannery there is no real dispute in this case that there is evidence supporting the commission's findings against mr hopkins and mr flannery  is less risky than atheists who are m d s is less risky than e d s then why is it material to an investor rather the ratio is fifty five twenty five ten or ninety  five your three holdings was in materially different risk profiles well your honor i think the answer to that is that it is a fundamental proposition of investing that investors want to know what they're invested in well sure everybody wants to know everything but you've got to prove materiality and the whole theory here is that this fellow was trying to hide the fact that there were ninety percent in the a b s around the fifty five because presumably materiality two responses to your question on our first it may be the case here that the credit quality of the underlying assets didn't change substantially depending on the allocation  there's no evidence no change at all in this record accepting that that's the case your honor it's still true that what was represented was a diversified portfolio based on the type of investment that what investors and their consultants like mr hammerstein were shown was a slide that said here's a diversified portfolio it is fifty five percent a b s and then allocate it does as illustrated across the other sectors and so it may be that some investors would have only wanted to care or would have only wanted to know about the credit quality of the underlying assets but it's equally possible that they would have wanted to know what the actual sector allocation w so what i hear you saying here then is that even if notional you these have identical risks and there's no evidence of that was the mere fact of greater diversification would be something someone could be interested in because greater diversification means in the direction of low risk how does that mesh up with you witness's testimony though about why he found material did did you have one witness of all the investors who heard this you ca have one person who say he thought it was material did he say it was because you can noted that the difference between a fifty five twenty five allocation and a ninety ten was material for diversification purposes he did yes  he testified that it was important to him to understand what the portfolio was invested in and i think when you look at that that's always true and if you just said that was enough then any very instant any he explained that as your honor noted that diversification to him was an indicator of risk in the portfolio and i think as i said even if the underlying credit quality of the assets doesn't change substantially diversification itself is still something that is important to investors that they are at least entitle to consider when deciding to remain invested in the work that you just heard your brother counsel make an argument that this wasn't material because most investors would in fact not be looking at allocations who would be looking at the bond ratings right now let's go back to the standards for cia and here how how can you possibly find that this was knowingly recklessness when in fact for many investors this information is irrelevant i mean do you have some statement as a matter of law that diversification even if not material somehow has to be disclosed you know your i don't have that statement i would agree that notions of materiality are built into c n c her analysis i think here  evidence showing that he walked into the meetings with investors knowing that they would be misled about what was in the portfolio his and others were the ones i was sorry that because of the one that whether this is one side of forty eight or one side of two whether that makes a difference here well i think it makes a difference when you're you know oh you what we the people and here we have evidence mr hammerstein testified that this guy had the information and the slide was important to him he testified that it made a difference to him and his colleagues when they worked with their clients and i think that was a discussion the question was focused on see enter whatever not he felt given the general fraction in history what's the basis for saying that when you have a meeting about the b b b change and going on you walk in with forty somethings it's that you're sitting there saying ah ha when they get to page forty six  in a feature they are typical of this and that i should know that because it's diversification it's reckless not to know that everybody would be interested in that seem to stretch respectfully i disagree your honor he received requests from investors for information in the portfolio as recently as two weeks before this presentation and you know if accurate information yes and that demonstrates that he understood what was in the portfolio the fact that he was walking into these meetings with a slide that was misleading on its face when he testified on equivocally that by may two thousand and seven this slide was not an accurate description of the find and that in fact as early dispute whether that is a materially misleading difference at issue here of course is the fifty five percent vs eighty or a hundred percent discrepancy that was at issue with respect to the a b s investment well  there was something there that if he was trying to sell this there was a positive thing about the car that he didn't bother to point out either doesn't that just go to the fact that the meeting was and not the market breakdown and no one would have been thinking that that accurate information well here's how whether it's reckless or not to have some other mistake in one of the forty something pages of mr hawkins as the commission found have an ongoing responsibility for keeping confronted with a fifty page deck of thought i was right before the meeting and hoping that everything in it was accurate he was familiar with the contents of this slide and for years was responsible for keeping it updated and here the fact that he consistently elected not to update it despite knowing consistently what the correct allocation was is evidence of his you enter and i just want to reiterate that on substantial evidence review this court asks only whether the evidence is sufficient to satisfy a reasonable fact finder it's not a yes q let me ask you a different question that's turning august to the letter with reference to that letter what specifically i was having trouble seeing what specific statement in the letter you say is fall i'm assuming it's in the last paragraph actions taken correct and which which sentences are that's false i agree your honor it's not a particular sentence but if you look at several causes together and context that is what the fact the sale of the aaa bonds reduced risk you think going from a aaa bond that is potentially under pressure in the market to cash at a time of a liquidity crisis in the market is not a reduction in risk if that is all that they were doing that would have reduced risk but the very purpose of the sale as mr flannery himself articulated at the july twenty fifth investment committee meeting was to free up cash to enable redemptions the purpose of the sale was not to hold on to cash to ensure that the risk profile in the portfolio was reduced what you seem to be saying is everything here is literally and completely true but they should've ascendance they also received demands for cash and had paid out on those demands so that of the aaa assets that they sold x percent of the cash proceeds is now out the door seems to be saying its feel mission of that that you complain i think that is certainly one way than which they might have made this letter not misleading the last sentence is also relevant though the last sentence states the actions we have taken in l j b f will simultaneously seek to any of those actions wouldn't each of those other fixed income strategies be slightly riskier than they were because of the sale of the aaa and the well when you increase tax when you read all the sentences together with this let it represents was we intend to take steps to reduce christer we have sought to reduce risk one of those steps is the sale of the aaa rated bonds and that has in fact reduced risk and the commission found otherwise the commission when you if you take don't sell anything that scenario one scenario and then get all your demands for cash but you haven't sold including selling the aaa rated bonds that what that suggests to the reader and i want to point out that the commission takes that the perspective of an investor reading that's not the perspective of state street street drafting this letter from the perspective of an investor an investor sees this and see if they've sold aaa rated bonds they've increased liquidity that has reduced risk in the fund and the reality here as we know from the discussion at the july twenty fifth investment committ meeting is that's just not what happened that was never the intent the intent was never to hold on to the cash in the fund the entire purpose of the sale was to create the quiddity for the up to fifty percent redemptions they expected as of the moment this letter we're now because mr flannery well new redemptions continued at a precipitous pace until the cash was largely dreamed from the fund and in fact i think it's incredibly important to remember that the related funds and the internal advisory group clients were deemed not just it was just a stray redemption or a single fine but this was all of their assets or virtually all is virtually all of their assets and all of those funds so we're not talking about just a little bit of cash coming out but a lot of it from the internal groups as mr flannery well knew based on his attendance and active participation and the july twenty fifth meeting you know who you would how do you back to the  the letter the writing about it was done by somebody else respectfully are i would argue that he is part of the vetting of that letter he received it he had it he did make changes to it and it's clear that he read it carefully and p given that this letter addressed the events that he had just addressed at this july twenty fifth meeting and days later that it it addressed the sale of the aaa rated bonds and the effect on the portfolio it was  well he received it certainly and had another opportunity to review it and how was it unreasonable for having to rely on his counsel's advice  risky wording would be a and not be as he originally drafted it with the commission hardly self evident to me that that phrase caused a risk language which you are now saying was inherently risky well the lawyers testified in this case that they relied on the business executives for the factual statements in the letter they were not in the business of double checking statements about it i mean they were not in the business of double checking statements about the fund and its risk and so if mr flannery is pointing at the lawyers and saying i look to them and the lawyers play flannery and say we rely on individuals like him for the factual statements the buck has to stop somewhere and here the commission recently that determined that it starts with the chief investment officer when it const statement about a fund's risk and how right if you're caught by surprise by anything that's said during revival we'll give you time ok thank you very much you your honor i just wanted to address a question that came up risk and i think it is very important looking at in the context of both materiality and scienter for mr hopkins looking at the rest and i would just cite the court to exhibit seventy three which was in april twenty fourth two thousand and seven yanni partners communicate to their clients and that was three weeks before the may tenth meeting interestingly enough is that mr hamel strain is in there saying that he understands that the limited duration bond fund is primarily invested in a v s and m b s at that time so as far as sort of diversity he has some different knowledge there and i think it is interesting that when we get to mate and then if it was so important the diversification in the typical slide portfolio you would think there would be some mention of it in the write up that was prepared by any partners that's exhibit eighty three joint appendix two zero nine one there's nothing there's no mention in the write up by the report prepared by national jewish exhibit sixty two j forty four thirty seven and there's no mention of it in the write up contemporaneously prepared by mr hopkins colleen and in fact in her write up  j four four four three five she notes that they only have three minutes to present and that is consistent with mr hopkins testimony that they got lost on the way there so you would think that if this was in  would it would show up in the response and mr you know when i asked mr hammerstein about his investment selection and this is on page twenty of our pride week he replied that as long as he knew the risk profile he didn't need to see the holdings  our due diligence procedures on our perception of risk if you don't want to see the holdings good looking at an allocation will tell you nothing about rest because you don't know whether the a b s his truck will be a b s you don't know whether it's double way you don't know when the mortgage backed securities triple b you also don't know whether there's any difference between the two because you don't know about the underlying securities so if you're not going to look at the securities to look for diversification it tells you thank you there's absolutely no evidence that the two letters in any way misled an investor that investor just did not know the allegedly omitted information or that any of it would have been material the unlike the case against mr hopkins the division of fauresmith did not call a single investor to the stand so you're left to speculate as to what the actual impact might have been in the burden as the fan and shanahan cases illustrate is on the commission to do just there has been a total failure proof but there's evidence that deals with the materiality  evidence is in the form of the expert john peavy who testified that in fact the system that was employees at the time for communicating with investors was reasonable and typical for investors in a collective trust fund such as these institutions and that it presupposed that investors and their consultants would reach out and contact states with questions and the record is also undisputed that they did their effect they did that in such volume in july two thousand and seven that state street form what it called a swat team and developed a series of these f a q s to provide answers for the questions that they anticipated investors that asked and those answers included there's closures that such high yada reference which is the amount of the redemptions that were taking place by early august of two thousand and seven the related find redemption activity and the advisory activity that's the sole evidence in the record on that subject except that the august sixth latter sent to the same group investors made precisely the same disclosure about the related funds and in fact libby if true which was announced by the aug sixth letter was premised on the idea that