(Bloomberg) -- A federal appeals court reinstated the conviction of former Nomura Securities International Inc. trader Michael Gramins, saying the facts that led to another trader’s exoneration didn’t apply to him and advancing a government crackdown on shady practices in the trading of complex bonds.

The ruling Friday, by the U.S. Court of Appeals in Manhattan, is a victory for federal prosecutors in Connecticut following setbacks to their campaign against questionable negotiating tactics used by bond traders. The panel said the facts in Gramins’s case weren’t like those in the case of former Jefferies Group LLC bond trader Jesse Litvak, who was freed by the same appeals court after evidence about his communications with counterparties was thrown out.

“The legal standard for the government in this appeal was very difficult to meet,” said Liam Brennan, a former prosecutor in Connecticut who worked on the case. “This decision is a vindication of the principle that theft on Wall Street is just as serious, if not more serious, than theft on Main Street.”

Marc Mukasey, an attorney for Gramins, called the ruling “a temporary setback.”

“We are still 100% in the fight, and there’s a long way to go,” he said.

Gramins and two other former Nomura traders were charged in September 2015 with defrauding investors by inflating the prices of mortgage-backed securities in the wake of the U.S. financial crisis to boost profits and their bonuses. Ross Shapiro was found not guilty of eight fraud counts, while the jury deadlocked on a single count of conspiracy, on which he could still be retried. A third trader, Tyler Peters, was acquitted.

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The trio was among more than a half-dozen traders charged as the prosecutors bore down on deceptive sales tactics in the market for complex bonds tied to mortgages and corporate loans. These bonds aren’t traded on transparent exchanges, so investors often have to depend on brokers to provide valuations.

Gramins was found guilty in June 2017 of a single count of conspiracy after a two-month trial and cleared of six fraud counts, while jurors deadlocked on two other charges. His conviction may have turned on internal Nomura recordings that prosecutors played in court. In one, jurors heard Gramins discuss what to say to a client he and others had allegedly defrauded, after Nomura had warned its traders not to lie to customers in the wake of Litvak’s arrest. No recordings of Shapiro or Peters were played.

A judge threw out Gramins’s conviction in June 2018 and granted Gramins a new trial because testimony by a representative of one of his customers may have caused the jury to believe he was an agent of the customer and therefore legally obliged to be truthful in his dealings, when in fact the two were sophisticated counterparties.

In reinstating his conviction on Friday, the appeals court said the testimony, unlike in the Litvak case, didn’t misrepresent the law or advance the government’s theory that his lies were material to his counterparties -- significant enough to affect their trading decisions.

Read More: One Nomura Trader Convicted, One Cleared at Bond Fraud Trial

“Nothing that occurred at Gramins’s trial conferred an undue advantage on the government in the battle over materiality,” the court said. “The debate over whether Gramins’s misrepresentations were material should therefore have remained where it nearly always belongs: with the jury selected to determine Gramins’s guilt or innocence.”

Litvak’s arrest and his conviction in 2014 alarmed traders, who feared they could also face criminal charges, and signaled that federal prosecutors in Connecticut were targeting common tactics in the industry. In addition to more than a half-dozen traders charged, dozens of others were suspended or left their firms in connection with the crackdown.

A Nomura unit in July agreed to repay customers $25 million to resolve U.S. regulators’ allegations that it failed to supervise traders who made false statements while negotiating sales of mortgage securities.

Thomas Carson, a spokesman for John Durham, the U.S. attorney in Connecticut, declined to comment.

The appeals-court case is U.S. v. Gramins, 18-cr-2007, U.S. Court of Appeals, Second Circuit (New York). The lower-court case is U.S. v. Shapiro, 15-cr-155, U.S. District Court, District of Connecticut.

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To contact the reporters on this story: Chris Dolmetsch in Federal Court in Manhattan at cdolmetsch@bloomberg.net;Erik Larson in New York at elarson4@bloomberg.net

To contact the editors responsible for this story: Heather Smith at hsmith26@bloomberg.net, Peter Jeffrey, Steve Stroth

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