United States Court of Appeals For the First Circuit

No. 19-2264

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff, Appellee,

v.

DAVID JOHNSTON,

Defendant, Appellant,

AVEO PHARMACEUTICALS, INC.; TUAN HA-NGOC; WILLIAM SLICHENMYER,

Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nathaniel M. Gorton, U.S. District Judge]

Before

Thompson and Kayatta, Circuit Judges.

John F. Sylvia, with whom Andrew N. Nathanson, Matthew D. Levitt, Emily Kanstroom Musgrave, Kerime S. Akoglu, and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., were on brief, for appellant.

 Judge Torruella heard oral argument in this matter and participated in the semble, but he did not participate in the issuance of the panel's opinion in this case. The remaining two panelists therefore issued the opinion pursuant to

(d). John Pagliaro and Martin J. Newhouse on brief for New England Legal Foundation, amicus curiae. Paul G. Alvarez, Senior Counsel, with whom Robert B. Stebbins, General Counsel, John W. Avery, Deputy Solicitor, and Hope Hall Augustini, Senior Litigation Counsel, were on brief, for appellee.

January 22, 2021 KAYATTA, Circuit Judge. The Food and Drug

Administration (FDA) expressed concerns to AVEO Pharmaceuticals

about the results of AVEO's clinical trial for tivozanib, a kidney

cancer drug candidate. In light of those concerns, the FDA

recommended that AVEO conduct another clinical trial. AVEO opted

not to disclose that recommendation to the markets until the FDA

itself revealed the recommendation eleven months later, at which

point AVEO's stock dropped thirty-one percent. In this subsequent

civil enforcement action brought by the Securities and Exchange

Commission, the principal issue is whether AVEO's CFO, David

Johnston, knowingly misled investors by the manner in which he

responded to investor inquiries about the substance of AVEO's

discussions with the FDA. After an eight-day trial, a jury found

against Johnston. On appeal, Johnston argues that he was entitled

to judgment as a matter of law because he had no duty to disclose

the FDA's recommendation, and because the evidence of scienter was

insufficient. Alternatively, Johnston argues that he is entitled

to a new trial because the district court improperly instructed

the jury on the law of materiality and the duty to disclose. For

the following reasons, we find the evidence of fraud and scienter

sufficient to support the verdict, and the challenged instructions

appropriate.

- 3 - I.

We begin with a summary of the evidence. Because

Johnston challenges the sufficiency of the evidence to support the

jury's verdict, we view the evidence in the light most favorable

to the verdict and draw any inferences in the verdict's favor.

Blomquist v. Horned Dorset Primavera, Inc.,

(1st

Cir. 2019).

From 2007 to 2013, Johnston served as the Chief Financial

Officer of AVEO Pharmaceuticals. As CFO, Johnston was responsible

for AVEO's communications to the investing public, including

communications about its drug development efforts.

In the spring of 2012, AVEO's financial future largely

turned on the success of its lead drug candidate, tivozanib, a

drug intended to treat a form of kidney cancer called renal cell

carcinoma. The FDA determines whether a drug such as tivozanib

may be marketed in the United States. The FDA approval process

requires a sponsor such as AVEO to prepare and submit a new drug

application (the "NDA"). See

(a). Approval

generally requires the application's sponsor to demonstrate the

drug's clinical benefit. See

(d). As announced in

its 2011 Form 10-K, AVEO expected to submit an NDA for tivozanib

to the FDA during the third quarter of 2012.

In May 2012, AVEO published results from TIVO-1, a

Phase 3 clinical trial comparing tivozanib to sorafenib, an

- 4 - approved kidney cancer treatment. TIVO-1's primary endpoint was

to measure progression-free survival (the length of time from when

the patient enters the study until the occurrence of either tumor

growth or the patient's death). TIVO-1's secondary endpoint was

to measure overall survival (the length of time from when the

patient starts treatment until the patient dies from any cause).

TIVO-1's results showed that tivozanib performed better than

sorafenib on progression-free survival but worse than sorafenib on

overall survival.

AVEO's representatives met with FDA officials on May 11,

2012, to discuss the prospects of AVEO's anticipated NDA (the "pre-

NDA meeting"). During that meeting, the FDA expressed concern

about the trend in the available overall survival data for TIVO-1

patients who received tivozanib. The FDA informed AVEO that

"[f]urther discussion of these findings will be required at the

time of filing and if the application is filed they will be a

review issue that could affect approvability." One FDA

representative, Dr. Amna Ibrahim, suggested that if AVEO submitted

an NDA for tivozanib with the same troubling overall survival data,

the FDA might refuse to file it. See

(a)(1)

(providing that an "NDA may be filed" once the "FDA has made a

threshold determination that the NDA is sufficiently complete to

permit a substantive review").

- 5 - AVEO argued at the pre-NDA meeting that the overall

survival data trend could be explained by the study's one-way

crossover design, which gave patients assigned to receive

sorafenib the option to take tivozanib if they experienced disease

progression but did not allow patients assigned to receive

tivozanib to receive sorafenib. But this explanation did not

persuade the FDA.

During the pre-NDA meeting, the FDA made two specific

recommendations to AVEO. First, the FDA recommended that AVEO

conduct a second Phase 3 study for tivozanib ("a second adequately

powered randomized trial in a population comparable to that in the

US"). Second, the "FDA also recommended that [AVEO] conduct the

final analysis of overall survival in the current trial." The

meeting minutes jointly prepared with input from both FDA personnel

and AVEO representatives memorialized both of these

recommendations.

Hours after the pre-NDA meeting, Dr. William

Slichenmyer, AVEO's Chief Medical Officer, shared the FDA's

feedback on a call with AVEO's executive committee. Slichenmyer

repeated "[v]erbatim" the FDA's recommendation at the pre-NDA

meeting that AVEO conduct a second Phase 3 study for TIVO. He

also informed the committee that "stay[ing] the course" by filing

the NDA in the third quarter of 2012 ran a "High Risk of [Refusal

to File] or Non-Approval." During the next several weeks,

- 6 - Slichenmyer also presented the FDA's feedback to the AVEO/Astellas

Joint Steering Committee1 and to AVEO's Board of Directors.

Johnston was privy to all of these presentations.

On June 26, 2012, AVEO's Board approved a plan and a

budget for the second trial recommended by the FDA. AVEO

nevertheless still hoped to obtain approval of its forthcoming NDA

before the second trial's end, which would not be for several

years. On July 2, 2012, AVEO sent briefing documents to the FDA

proposing a post-approval trial (rather than a second pre-approval

trial). AVEO also requested a meeting to discuss the FDA's

feedback on the proposal (the "Type A meeting").

On August 2, 2012, AVEO filed a Form 8-K and issued a

press release that discussed TIVO-1's results. Rather than simply

remaining largely silent on the substance of its discussions with

the FDA, AVEO issued a "Regulatory Update" disclosing that "[t]he

FDA has expressed concern regarding the [overall survival] trend

in the TIVO-1 trial and has said that it will review these findings

at the time of the NDA filing as well as during the review of the

NDA." AVEO told investors that it believed it could "directly

address this issue" by "conducting additional analyses to be

included in the NDA submission that demonstrate that the [overall

1 AVEO had entered into a joint venture with Astellas Pharma, Inc., to develop tivozanib and obtain regulatory approval for the drug.

- 7 - survival] data from TIVO-1 are consistent with improved clinical

outcomes in [renal cell carcinoma] patients receiving more than

one line of therapy." Although AVEO was "continuing to work toward

submitting the NDA by end of the third quarter," it noted there

was "a chance that the additional [overall survival] analyses may

cause the submission to move into the fourth quarter."

That same day, AVEO held a conference call for investment

analysts. In preparation for the call, Johnston and his

communications staff created a document scripting responses to

anticipated analyst questions. The script gave specific guidance

on how to answer questions about whether the FDA had recommended

further trials:

Additional Studies Requested by Agency • At this time the Agency has not required an additional study for approval. • We are comfortable with our plans to address the [overall survival] concerns and are moving forward with the NDA submission. IF PUSHED...details on discussions with FDA • We wouldn't want to speculate on what the Agency would do in the future.

With Johnston present on the call, Slichenmyer answered

analysts' questions in accordance with the script. When Thomas

Wei, an investment analyst, asked:

[W]ould you be able to help us understand, based on your discussions with the agency, let's say that these additional analyses that you're submitting actually are ultimately not sufficient to address their concerns on overall survival. What are the different pathways that you would have going forward to

- 8 - get TIVO approved? Is it waiting for the overall survival data to mature, or [are] there . . . other possibilities that maybe the FDA outlined to you as a way to fix this issue?

Slichenmyer responded:

Yes. So first I want to reaffirm that we believe that the current data package should be sufficient to gain approval. But in the unlikely scenario that we might get into something like you described there[,] I can't speculate on what the agency might be thinking or what additional actions might be necessary. But obviously, it would be tail[or]ed to what, if any, concerns they had.

Wei reasonably understood Slichenmyer's response to mean that "he

ha[d] no idea what the FDA might outline as a way to fix the

issue."

Salveen Richter, an investment analyst, followed up on

Wei's question:

So, when you met with the FDA and they brought up their concerns, did they kind of point you towards a direction of what studies they wanted you to acquire? And when you commented on these analyses that you're doing, were they comfortable with that or did they kind of push you into a different direction of maybe doing some additional new analyses or additional studies?

Slichenmyer answered:

Yes. So, we're not going to get into the details of our ongoing discussions with the agency at this point. And really, the key thing about our updating today is because of the potential impact on our NDA submission timeline. And so regarding any future study, I think -- again, I just can't speculate on

- 9 - what the agency might want us to do in the future.

Later that day, Richter wrote an investment report stating that

"new trials will not be required" for tivozanib, and that report

was sent to Johnston on August 3. Another analyst on the call,

Adnan Butt, reasonably understood Slichenmyer's answer to

Richter's question to mean "[t]hat a discussion of another study

has not come up." Following AVEO's August 2 disclosures, AVEO's

stock price declined twenty-seven percent.

In a 10-Q filing on August 7, 2012, AVEO repeated the

information it had included in its press release regarding the

FDA's pre-NDA meeting feedback and revised its planned timeline

for filing the NDA from the third quarter to the "second half" of

2012. The August 2012 10-Q also stated that AVEO "cannot be

certain as to what type and how many clinical trials the FDA . . .

will require us to conduct before we may successfully gain approval

to market tivozanib." AVEO noted that "[p]rior to approving a new

drug, the FDA generally requires that the efficacy of the drug be

demonstrated in two adequate and well-controlled clinical trials."

AVEO's subsequent public statements about the FDA's pre-NDA

meeting feedback followed the same pattern; when Johnston spoke at

investment conferences in August and September, he never mentioned

the FDA's recommendation to conduct a second study.

- 10 - On August 29, 2012, the FDA responded to AVEO's Type A

meeting request. The response stated that the FDA had "significant

concerns regarding the trial design described in [AVEO's] meeting

package" and offered no encouragement that the recommended second

study could be done post-marketing. After receiving that feedback,

AVEO canceled the Type A meeting.

On September 27, 2012, AVEO submitted an NDA for

tivozanib. AVEO's Form 10-Q filing on November 8, 2012, noted the

NDA's submission, but it contained a risk disclosure statement

much like the one in AVEO's August 2012 Form 10-Q. Later in

November, the FDA issued a "Day 74 Letter" notifying AVEO that the

NDA submission contained adequate information for the FDA to review

the NDA. But the FDA also indicated that the TIVO-1 overall

survival data would be a "review issue[]" considered by the

Oncologic Drugs Advisory Committee (ODAC).

In January 2013, AVEO conducted a public offering that

raised over $53 million. In connection with the offering, the

underwriters' legal counsel2 and AVEO's legal counsel3 wrote

negative assurance letters informing the underwriters that based

on their conversations with AVEO's officers and review of AVEO's

2 Ropes & Gray, LLP, served as counsel to the underwriters. 3 Wilmer Cutler Pickering Hale and Dorr, LLP, served as counsel to AVEO.

- 11 - registration statement, pricing disclosure package, and

prospectus,4 no facts that came to their attention caused them to

believe that the offering documents omitted "a material fact

necessary in order to make the statements therein, in the light of

the circumstances under which they were made, not misleading."

On February 26, 2013, the FDA announced in the Federal

Register that tivozanib's overall survival data would be reviewed

by the ODAC at a meeting on May 2, 2013. The day after the FDA's

announcement, Johnston spoke at an investment conference. Adnan

Butt, an investment analyst, asked Johnston point-blank: "Have

you -- either your partner or the FDA discussed any further trials

in kidney cancer so far?" Rather than answering forthrightly, or

refusing to answer, Johnston gave the following response:

We have not had any formal discussions, no. But that brings up an interesting question. There's a whole range of possibilities that might come out of this. On the most positive [end] is that ODAC and the FDA each say, yes, we understand, we believe this is what's happening, very credible, go forth and sell [the] drug. On the other end, they could say, this sounds plausible but we would like to see a confirmatory trial before you start marketing this. That's what we call the bad news scenario. But in between, there's a whole series of things and it's fairly conceivable that they might want a confirmatory trial post-marketing. And it's important for people to understand that that

4 AVEO's prospectus incorporated by reference several of AVEO's public filings, including the August and November Form 10-Qs.

- 12 - would fit in well with our strategy that we already have in our operating plans anyway.

On March 11, 2013, AVEO filed a Form 10-K for 2012, which

did not disclose the FDA's recommendation to conduct another study.

One week later, AVEO participated in a Type A meeting with the FDA

to discuss a second clinical trial for tivozanib. The FDA

"encourage[d]" AVEO to "design the trial properly as soon as

possible and [to] initiate it independent of the action taken on

the current NDA submission," and the FDA added that "[t]he design,

conduct, and results of this trial will determine whether this one

additional trial will be sufficient for approval purposes." AVEO

inquired at the Type A meeting whether the FDA was requiring a

second trial before the FDA would approve the tivozanib NDA. The

FDA responded that the NDA remained "under review" and that "no

final decision ha[d] yet been made on the application."

On April 30, 2013, the FDA released the briefing

documents submitted to the ODAC in advance of the May 2 meeting.

The briefing documents revealed to the public that the FDA had

recommended at the May 2012 pre-NDA meeting that AVEO conduct

another trial. After that disclosure, AVEO's stock price dropped

thirty-one percent. In May 2013, the ODAC rejected the adequacy

of TIVO-1.

- 13 - II.

The operative complaint in this matter alleged

violations of section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b)

and Rule 10b-5,

.10b-5; section 17(a)(1)–(3) of the

Securities Act, 15 U.S.C. § 77q(a); and Exchange Act Rule 13a-14,

.13a-14.5 The case went to trial, and, after the

SEC rested, Johnston unsuccessfully moved for judgment as a matter

of law. The jury returned a verdict in favor of the SEC and

against Johnston on all claims. The district court thereafter

entered judgment against Johnston, barring him from serving as an

officer or director of a public company for two years, ordering

disgorgement of $5,677 plus prejudgment interest, imposing a

$120,000 civil penalty, and permanently enjoining him from

violating securities laws. The district court subsequently denied

Johnston's timely renewed motion for judgment as a matter of law

pursuant to Fed. R. Civ. P. 50(b) and for a new trial pursuant to

Fed. R. Civ. P. 59. Johnston timely appealed.

III.

"A motion for judgment as a matter of law may be granted

only if a reasonable person, on the evidence presented, could not

reach the conclusion that the jury reached." Visible Sys. Corp.

v. Unisys Corp.,

(1st Cir. 2008). Johnston

5 Johnston was not the only defendant sued, but the others settled the claims against them.

- 14 - challenges the denial of his motion for judgment as a matter of

law on two grounds. Johnston first argues that he had no duty to

disclose the FDA's recommendation to conduct another clinical

trial for tivozanib. Second, he contends that the evidence of

scienter was insufficient. We address each argument in turn.

A.

We begin with Johnston's duty-to-disclose argument. The

SEC had to prove, among other things, that in connection with the

purchase or sale of securities Johnston used or employed "any

manipulative or deceptive device or contrivance in contravention

of such rules and regulations as the [SEC] may prescribe." 15

U.S.C. § 78j(b). Pursuant to that statutory authority, the SEC

promulgated Rule 10b-5(b), which provides in relevant part that

"[i]t shall be unlawful for any person, directly or

indirectly, . . . [t]o make any untrue statement of a material

fact or to omit to state a material fact necessary in order to

make the statements made, in the light of the circumstances under

which they were made, not misleading."

.10b-5(b).

Section 17(a)(2) of the Securities Act prohibits securities

sellers from making the same type of statements prohibited by

Rule 10b-5(b). 15 U.S.C. § 77q(a)(2). A fact is "material" within

the meaning of these provisions if it is substantially likely to

be viewed by a reasonable investor as "significantly altering the

total mix of information made available." In re Smith & Wesson

- 15 - Holding Corp. Sec. Litig.,

(1st Cir. 2012); Basic

Inc. v. Levinson,

, 231–32 (1988).

Johnston's argument starts out on solid footing. It is

well-settled that the "mere possession of . . . nonpublic

information does not create a duty to disclose it." In re Smith

& Wesson Holding Corp. Sec. Litig.,

(alteration

omitted). This is so even when that nonpublic information is

material. Id.6 And we have observed on several occasions that a

company such as AVEO is not, in the ordinary case, "under an

affirmative obligation to disclose 'each detail of every

communication with the FDA.'" Yan v. ReWalk Robotics Ltd.,

(1st Cir. 2020) (quoting In re Bos. Sci. Corp. Sec.

Litig.,

(1st Cir. 2012)); Corban v. Sarepta

Therapeutics, Inc.,

(1st Cir. 2017) ("The

defendants had no legal obligation to loop the public into each

detail of every communication with the FDA."); see also Fire &

Police Pension Ass'n of Colo. v. Abiomed, Inc.,

(1st Cir. 2015) ("There must be some room for give and take between

a regulated entity and its regulator.").

So far, so good. The problem for Johnston is that the

SEC finds no need to argue in this case that AVEO's mere knowledge

of the FDA's recommendation required AVEO to disclose it. To the

6 Amicus curiae New England Legal Foundation emphasizes this point in its brief in support of Johnston.

- 16 - contrary, the SEC assumes, arguendo, that until AVEO spoke as it

did on the substance of its communications with the FDA, it was

not required to disclose the recommendation. The SEC instead

points to the fact that Johnston chose to make statements to

analysts and investors about its discussions with the FDA. So the

pivotal question is whether those statements were knowingly

misleading. Statements can be misleading if they are materially

untrue. See

.10b-5(b) ("It shall be unlawful . . .

[t]o make any untrue statement of material fact . . . ."). They

can also be misleading if they are half-truths, painting a

materially false picture in what they say because of what they

omit.

("It shall be unlawful . . . to omit to state a material

fact necessary in order to make the statements made, in the light

of the circumstances under which they were made, not

misleading . . . ."); see generally Corban,

.

When investment analysts inquired about whether the FDA

had "outlined" "other possibilities" to address overall survival

concerns, such as "additional studies," Johnston knew that there

were two readily apparent, non-deceptive answers: "Yes" or "we

choose not to answer that question." Likely fearing (or so the

jury could have found) that either answer would effectively convey

the unhelpful truth, Johnston opted for neither. Instead, he

prepped Slichenmyer to respond that he could not "speculate" about

"what the agency might be thinking" or "what additional actions

- 17 - might be necessary," clearly implying that AVEO lacked knowledge

short of speculation. And when another investment analyst asked

whether the FDA "push[ed] [AVEO] into a different direction of

maybe doing . . . additional studies," Slichenmyer again said that

he could not "speculate on what the agency might want us to do in

the future." The SEC presented evidence that no speculation was

necessary on these topics after the FDA recommended in May 2012

that AVEO conduct a second study.

Whether Slichenmyer's foregoing responses as crafted by

Johnston and given in his presence could by themselves support the

jury's verdict, we need not finally decide. Rather, we point, as

the SEC does, to the doubling-down that occurred at the investment

conference on February 27, 2013. Johnston was asked, "Have you

-- either your partner or the FDA discussed any further trials in

kidney cancer so far?" Johnston fielded this question over nine

months after AVEO's pre-NDA meeting with the FDA, at which the FDA

specifically recommended that AVEO conduct a second trial; about

eight months after AVEO proposed to the FDA plans for a second

trial; and about six months after the FDA criticized AVEO's

proposed design for a second trial. Yet, he responded, "[w]e have

not had any formal discussions, no." Offered in the wake of

Slichenmyer's scripted deflections, this answer plus Johnston's

subsequent description of an additional trial as one outcome in

the "range of possibilities that might come out of this" reinforced

- 18 - the misleading impression that the FDA had not even discussed with

AVEO an additional trial during the pre-NDA meeting.

Johnston seeks to insulate his statements from the

jury's consideration by pointing to cases posing the issue of

whether a company misleads by providing a general acknowledgement

of a risk that an adverse event could occur in the future without

further explaining its likelihood. See Hill v. Gozani,

(1st Cir. 2011) (disclosing "risk[] associated with . . .

reimbursement by third party payors" without explaining that

people within the company disagreed about the risk's severity); In

re Sanofi Sec. Litig.,

, 540–41 (S.D.N.Y 2015)

(disclosing that approval depended on "hav[ing] an extremely

convincing set of results" without explaining that FDA had

indicated need for "a heightened showing of proof . . . to

compensate for the less reliable testing methodology used"), aff'd

sub nom. Tongue v. Sanofi,

(2d Cir. 2016). These

cases explain that identifying the risk of a future adverse event

without volunteering an assessment of its likelihood generally

will not, by itself, constitute an actionable misrepresentation

unless the risk of the event's occurrence "approaches a certainty."

Hill,

(explaining that broad disclosure of risk

related to reimbursement was sufficient where the level of risk

was unknown); In re Sanofi Sec. Litig., 87 F. Supp. 3d at 540–41

(concluding that company was not required to disclose FDA feedback

- 19 - where such feedback was not "tantamount to a statement that [the

company's drug] could not or would not obtain timely FDA

approval"). Here, though, the question is not whether Johnston

refused to quantify a generally identified risk of what the future

might bring, but rather whether Johnston communicated to investors

a false statement about the past: that the FDA had not formally

discussed, much less recommended, a second study.

Johnston also points to our decisions in Kader v. Sarepta

Therapeutics, Inc.,

(1st Cir. 2018), and Corban v.

Sarepta Therapeutics, Inc.,

(1st Cir. 2017), as

supporting his position. We disagree. In Kader, the plaintiffs

complained that the defendant had failed to disclose that it was

not going to accede to a request by the FDA. See

.

But there was no attempt to pretend that the FDA had not made the

request, or that the defendant was acceding to it. See

And,

in Corban, we found that the defendant "faithfully represent[ed]"

the FDA's position, and that the plaintiff had failed to show how

not providing even more information was recklessly or

intentionally misleading.

. Neither holding helps

a defendant who sketches a false picture of the FDA’s feedback on

a plainly material point.

In sum, a reasonable jury could find that Johnston used

carefully crafted half-truths and distortions to convey a false

understanding of the FDA's feedback on the company's clinical trial

- 20 - and thereby violated his duty to make accurate statements regarding

material facts. See Hill,

("[E]ven a voluntary

disclosure of information that a reasonable investor would

consider material must be complete and accurate." (alteration in

original) (quoting Backman v. Polaroid Corp.,

(1st

Cir. 1990) (en banc))).

B.

We consider next Johnston's argument that the evidence

of scienter was insufficient. Proof of scienter is required to

establish violations of section 10(b), Rule 10b-5, and

section 17(a)(1), but negligence is sufficient to establish

liability under section 17(a)(2) or section 17(a)(3). SEC v.

Ficken,

(1st Cir. 2008). Scienter can be

established by showing "either that the defendants consciously

intended to defraud, or that they acted with a high degree of

recklessness." Corban,

(quoting Aldridge v. A.T.

Cross Corp.,

(1st Cir. 2002)). A high degree of

recklessness "demands 'a highly unreasonable omission,' one that

not only involves 'an extreme departure from the standards of

ordinary care,' but also 'presents a danger of misleading buyers

or sellers that is either known to the defendant or is so obvious

the actor must have been aware of it.'"

(quoting In re Smith

& Wesson Holding Corp. Sec. Litig.,

).

- 21 - As this court has observed, a defendant's publication of

statements when that defendant "knew facts suggesting the

statements were inaccurate or misleadingly incomplete is classic

evidence of scienter." Aldridge,

(citing Fla. State

Bd. Of Admin. v. Green Tree Fin. Corp.,

, 655 (8th

Cir. 2001)). Johnston's own testimony reflects that he learned of

the FDA's recommendation to conduct another study shortly after

the pre-NDA meeting. So he knew about the FDA's recommendation

when Slichenmyer stuck to Johnston's question-and-answer script

during the conference call on August 2, 2012, by stating, when

asked whether the FDA had suggested another study, that he "[could

not] speculate on what the agency might want us to do in the

future." Most importantly, Johnston knew about the FDA's

recommendation at the pre-NDA meeting when he denied on

February 27, 2013, that AVEO had engaged in "formal discussions"

with the FDA about another study. Because that too cleverly

crafted denial conflicted with a fact known to him, a reasonable

jury considering this evidence could conclude that Johnston

"consciously intended to defraud, or that [he] acted with a high

degree of recklessness." Id. at 82.

Our decision in Yan v. ReWalk Robotics Ltd.,

, 40–41 (1st Cir. 2020), is not to the contrary. There, a

medical device manufacturer did not disclose an FDA letter warning

that noncompliance with a deadline to conduct a postmarket

- 22 - surveillance study "rendered [its] device misbranded."

.

The manufacturer had already told investors that failure to comply

with the postmarket surveillance study requirement could have the

consequences described in the letter.

And, importantly, the

complaint did not allege that the manufacturer "made any claim

concerning its progress with the FDA that was inconsistent with

its receipt of the letter."

Johnston makes several other arguments, all of which

fail to persuade. First, Johnston repurposes his duty-to-disclose

argument as a scienter argument, contending that a reasonable jury

could not conclude he acted with scienter because he had no clear

obligation to disclose the FDA's recommendation. But even assuming

Johnston had no duty to disclose the FDA's pre-NDA meeting feedback

in the first instance, he had a duty not to mislead when he

described that feedback. It was not, as Johnston puts it, "a close

call" whether he breached that duty by denying that AVEO and the

FDA had "formal discussions" about another study.

Second, Johnston argues that no reasonable jury could

find that he acted with scienter because he and AVEO disclosed the

TIVO-1 data, the FDA's overall survival concerns, and their

uncertainty about whether a second study would be necessary to

obtain NDA approval. But a defendant's disclosure of a subset of

unfavorable facts does not prevent that defendant from misleading

investors, with scienter, about another known and material

- 23 - unfavorable fact. Nor does the contention that AVEO would have

disclosed the FDA's recommendation in the event the FDA

"require[d]" another trial relieve Johnston of the obligation to

speak truthfully when discussing whether the FDA had already made

a recommendation for such a trial. A reasonable jury would thus

be free to reject Johnston's evidence of good faith and conclude

that Johnston, with scienter, presented a materially distorted

picture of the FDA's feedback.

Third, Johnston argues that no reasonable jury could

conclude that he acted with the requisite scienter because he

adhered to AVEO's corporate governance protocols. Johnston

contends that he could not have made a misleading statement with

scienter because legal counsel for AVEO and the underwriters knew

of the FDA's recommendation and nevertheless wrote negative

assurance letters to the underwriters of AVEO's January 2013 public

offering. Johnston also argues that he could not have intended

for AVEO's disclosures to mislead because many sophisticated

actors working on AVEO's behalf reviewed and approved AVEO's

disclosures.

Johnston's claimed adherence to corporate governance

protocols, while relevant and perhaps helpful in building a defense

based on good faith, does not preclude liability for

misrepresentations about the FDA's recommendation to conduct a

second study. There was certainly no protocol, after all, saying

- 24 - that Johnston could make statements designed to cause investors to

reasonably believe that which was not true. As for the attorneys'

letters, chronology (among other things) defeats the logic of

Johnston's attempt to hide behind them. Counsel for AVEO and the

underwriters provided the negative assurance letters on

January 23, 2013. Johnston made the false and misleading statement

that suffices to support the jury's verdict more than a month

later. The negative assurance letters simply could not have

assessed whether Johnston made a misleading statement of material

fact when he said that AVEO and the FDA had not engaged in "formal

discussions" about another study.

The negative assurance letters' circumscribed scope also

limits their probative value with respect to the statements made

prior to January 23, 2013. Both letters made assurances that "the

Registration Statement," "the Pricing Disclosure Package," and

"the Prospectus," which incorporated AVEO's August and November

Form 10-Qs by reference, were truthful and non-misleading based on

the information the law firms gathered during their respective due

diligence processes. But Johnston does not point to, nor have we

found, anything in the record to show that the negative assurance

letters made representations about whether AVEO's statements

during its various conference calls with or presentations to

- 25 - investment analysts contained material falsehoods or misleadingly

omitted material facts.7

Nor does AVEO's review process for disclosures compel

the conclusion that the scienter evidence was insufficient. AVEO

had no review process vetting Johnston's misleading answers to

analysts' questions at investment conferences. A reasonable jury

could therefore conclude that Johnston made his misleading

statement with scienter on February 27, 2013. This is hardly a

case, after all, where the subject of FDA recommendations and a

second drug trial came out of the blue. Even where Johnston relied

on AVEO's review process before making statements, a reasonable

jury could reject Johnston's evidence of good faith and credit the

SEC's evidence of scienter.

In summary, because Johnston's calculated statements

were inconsistent with known facts, a reasonable jury could

conclude that he made those statements at least with a high degree

of recklessness. That showing of scienter satisfies the SEC's

burden on its section 10(b), Rule 10-b(5), and section 17(a)(1)

claims, and it is more than sufficient to satisfy the burden for

claims under section 17(a)(2) and (a)(3). Because the SEC

7We do not imply that letters of this type from counsel would in other circumstances provide a complete defense. See Markowski v. SEC,

(2d Cir. 1994) (noting that reliance on the advice of counsel "is not a complete defense, but only one factor for consideration").

- 26 - presented sufficient evidence on each element of its claims, we

affirm the denial of Johnston's renewed motion for judgment as a

matter of law.8

IV.

In the alternative, Johnston seeks a new trial on the

basis that the jury instructions contained prejudicial errors. In

Johnston's view, a new trial is warranted because the district

court (1) failed to describe materiality and the duty to disclose

as separate elements and (2) failed to explain that no duty to

disclose can arise with respect to interim FDA communications that

do not reflect certain outcomes. In considering such preserved

arguments, we "afford de novo review to questions as to whether

jury instructions capture the essence of the applicable law, while

reviewing for abuse of discretion . . . the court's choice of

phraseology." Teixeira v. Town of Coventry,

(1st

Cir. 2018) (alteration in original) (internal quotation marks

omitted) (quoting Ira Green, Inc. v. Mil. Sales & Serv. Co., 775

8 The SEC also brought a claim against Johnston under Exchange Act Rule 13a-14 for falsely certifying that three AVEO documents -- its Form 10-K filed in March 2013, Form 10-Q filed in November 2012, and Form 10-Q filed in August 2012 -- did not contain any untrue statement of material fact or omit to state a material fact necessary to render the statements made not misleading. See

.13a-14. Johnston offers no independent argument for why the verdict against him should be set aside on the SEC's claim under Rule 13a-14. So, in light of his statement on February 27, 2013, Johnston's certification of AVEO's 2012 Form 10-K on March 11, 2013, provides a sufficient basis for the jury's verdict on the SEC's claim under Rule 13a-14.

- 27 - F.3d 12, 18 (1st Cir. 2014)). We also limit our review to the

specific challenges raised by Johnston.

The district court opened with the following:

With respect to . . . untrue statements of material fact or omissions of material fact, the SEC must prove that Mr. Johnston committed fraud by making one or more statements that were not true when they were made or show that Mr. Johnston failed to disclose a material fact that he had a duty to disclose in order to make the other statements not misleading. For the SEC to prevail, you must unanimously agree on which statement was untrue or which undisclosed fact was misleading and find that the untrue statement or undisclosed fact was material.

See

.10b-5(b); 15 U.S.C. § 78j(b); 15 U.S.C.

§ 77q(a). The court then explained that, "I will now describe the

terms 'material' and 'duty to disclose' in a little more detail."

First, the court addressed materiality:

A fact is material if there is a substantial likelihood that a reasonable investor would consider the fact important when making a decision about whether to invest his money in a particular security. In other words, a statement leaves out a material fact if there is a substantial likelihood that a reasonable investor would view the absent fact as significantly altering the total mix of the information available. When information merely creates a possibility that an event affecting a company will later occur, materiality will depend upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity.

The court next addressed the duty to disclose:

- 28 - You cannot find a Defendant liable if he did not have a duty to disclose the information. Information that is disclosed must be complete and accurate, but not all information that is material and nonpublic must be disclosed. Thus, even if an omitted statement was material, a Defendant cannot be liable for securities fraud if there was no duty to disclose the information at issue. For example, a Defendant does not have a duty to disclose facts that would be interesting to the market, nor must every discussion between a regulated entity and its regulator be disclosed. Rather, a Defendant has a duty to disclose information when it is material and when the fact or facts would need to be revealed so as not to mislead. The fact that a statement is literally accurate does not preclude liability. Some statements, although literally accurate, can become misleading if, in their context and manner of presentation, they would mislead investors.

No reasonable jury listening to these instructions would

fail to understand that materiality is a description of the

importance of a fact to investors, while the duty to disclose

refers to the responsibility to affirmatively reveal some facts.

Far from conflating the two elements, the instructions expressly

state that "not all information that is material and nonpublic

must be disclosed." As for Johnston's second complaint, the

instructions also made clear that not every discussion with

regulators need be disclosed. A district court certainly has no

duty to give an incorrect instruction. Nor is a district court

"obliged either to embellish legally correct statements or to cover

- 29 - every factual permutation." DeCaro v. Hasbro, Inc.,

(1st Cir. 2009).

V.

For the foregoing reasons, we affirm the district

court's denial of Johnston's motion for judgment as a matter of

law and for a new trial.

- 30 -