United States v. Chan

981 F.3d 39

UNITED STATES, Appellee,

v.Schultz CHAN, a/k/a Jason Chan; Songjiang Wang, Defendants, Appellants.

Nos.18-2232

18-2233

19-1910

19-1911

United States Court of Appeals, First Circuit.

November 20, 2020

Peter Charles Horstmann, with whom Elliot Weinstein, Boston, MA, was on brief, for appellants.

Carol Head, Assistant United States Attorney, with whom Andrew E. Lelling, United States Attorney, Jordi DeLlano, Assistant United States Attorney, and Kriss Basil, Assistant United States Attorney, were on brief, for appellee.

Before Thompson, Barron, Circuit Judges.^*

THOMPSON, Circuit Judge.

Two biostatisticians employed by two publicly traded biopharmaceutical companies were convicted of securities fraud and conspiracy to commit securities fraud after they bought and sold shares in each other's employing companies. When processing their stock transactions, both were in possession of confidential raw data from clinical trials of drug treatments from the other's company. On appeal, they make several claims of trial and sentencing error, including challenges to: (1) the denial of their motions for judgments of acquittal on each count of conviction, (2) the denial of a motion to compel production of a letter, (3) the calculation method for the adjusted base offense level for one of the defendants, and (4) the restitution order. For the reasons discussed below, we affirm across the board.

BACKGROUND

When, as here, defendants challenge the sufficiency of the evidence to support their convictions, we provide our summary of the facts in the light most favorable to the jury's verdict. United States v. Charriez-Rolón, 923 F.3d 45, 47 (1st Cir. 2019). We use this section to paint the big picture of what happened in this case; we'll save some of the nitty-gritty detail for the discussion section below, as needed, to complete the picture as we tackle each issue on appeal.

Akebia & Defendant Chan

Akebia Therapeutics, Inc. (Akebia) is a publicly traded biopharmaceutical company focused on the development of treatments for kidney disease. Schultz Chan, one of the defendants, is a biostatistician who has spent his career working on clinical trials in biotech companies. In the summer of 2015, Akebia hired Chan to be its first in-house statistician; his role as Akebia's Director of Biostatistics started on August 17, 2015. This was an important time for the company; it was in the midst of closing out an important clinical trial of a treatment for dialysis patients with chronic kidney disease (known as the "11 study"). The results of the "11 study" would not only affect the target patient population but also those who had invested in Akebia by holding shares of its publicly traded stock.¹

Three days before Chan started working at Akebia, one of its in-house attorneys sent an email to all Akebia's employees imposing a blackout period on them, effective immediately. A "blackout period" is when a company prohibits its employees -- or a group of its employees -- from buying or selling its stock because those employees may be, or are, in possession of important information that has not yet been released to the public. This information is referred to as "material, non-public information" (MNPI) to those in the industry. Blackout periods are often imposed around the quarterly release of financial information or the release of clinical trial data because it prevents insiders from using company information which could impact stock pricing.

Chan was part of the team responsible for analyzing the data from the clinical trial and delivering some key results to Akebia's executives, such as whether the treatment has been working and whether there are any red flags about the safety of the treatment. Data from the completed "11 study" was ready for analysis in the first days of Chan's employment. Akebia's executives needed the analyzed results from the "11 study" as soon as possible so they could decide how and when to release the results to the public and, most importantly, to Akebia's existing and potential investors.

On August 19, 2015, Chan and others on his team received good news; the preliminary data from the "11 study" showed almost zero "sudden adverse effects" from the treatment tested such as deaths, strokes, deep vein thrombosis, or heart attacks.² This was important news because a report released the month before had highlighted the results from a study of the same treatment tested on non-dialysis patients with chronic kidney disease (the phase 2 "7 study") in which three patients who had received the treatment died. That report had posited that these "safety issues" had the effect of "weigh[ing] down" Akebia's stock price. Akebia announced the full results from the "11 study" to the general public on September 8, 2015.

Merrimack & Defendant Wang

Merrimack Pharmaceuticals, Inc. (Merrimack) is a publicly traded biopharmaceutical company dedicated to the development of diagnostics and treatments for cancer. In 2013 and 2014, Merrimack tested a treatment it had developed to prolong the survival of those with metastatic pancreatic cancer who were also undergoing chemotherapy. The development of this treatment (known as MM-398 ) had progressed to a phase 3 trial (see supra note 1), referred to as the NAPOLI-1 study. The NAPOLI-1 study's design included specific benchmarks; for instance, they needed approximately 405 patients to enroll in the trial and the study's data would close out upon the 305th patient death. Merrimack used press releases to communicate information about these benchmarks. For example, a press release issued on August 28, 2013, announced Merrimack had reached its patient enrollment goal of 405 patients in the NAPOLI-1 study. Merrimack also announced the results from the completed NAPOLI-1 study through a press release issued on May 1, 2014, after the 305th patient had passed away in February and the team had analyzed the results.

Merrimack initially thought the 305th patient death would occur in the fall of 2013. Anticipating this milestone, in-house counsel imposed a stock trading blackout period during the summer of 2013 on those who worked closely with the study. The blackout period was lifted in November because the study had not yet reached the 305th patient death, and employees were admonished not to trade in Merrimack stock if they were in possession of MNPI about the NAPOLI-1 study. A blackout period was again imposed on April 21, 2014, when the final data from the NAPOLI-1 study was available to a select few employees for analysis. As previously stated (but to close the chronology of events), Merrimack issued a press release with the final results from the NAPOLI-1 study on May 1, 2014.

Enter Songjiang Wang, the other defendant in this case. He joined Merrimack in 2011 and, during the NAPOLI-1 study, he led the statistical programming group at Merrimack. Wang's role for the NAPOLI-1 study was to write the computer program to execute the data analysis plan. To accomplish this task, Wang used a statistical analysis plan (SAP) which Merrimack developed as part of the FDA approval process. Wang had access to the NAPOLI-1 study data from the summer of 2013 through the duration of the study; this preliminary data would have been used to test the computer program he was writing in preparation to execute the ultimate data analysis once the study was over and the dataset was final. Wang was also part of the team who analyzed the final dataset in April 2014.

Where Friendship and Banking Activity and Stock Trading Meet

And now, the defendants, Akebia, and Merrimack converge. The defendants met for the first time around 2008 when Chan, then a senior director of biostatistics at FoldRx, hired Wang as a part-time statistical programming consultant. Chan and Wang stayed in touch through subsequent job changes and moves around the country. In 2012 and 2013, Chan borrowed money from Wang to renovate real property Chan owned in Massachusetts and Connecticut. Rather than immediately spend some of the borrowed money on the property renovations, however, Chan invested it in stocks, including shares of Merrimack (where Wang worked). When Chan applied for a position at Akebia, Wang served as a reference for him. After Chan started working at Akebia, the men texted regularly and met frequently for lunch.

Chan and Wang were active investors in the stock market, favoring shares in biopharmaceutical companies. A deep dive by the government into their financial records revealed their trading activities as well as timing of withdrawals of cash from their bank accounts, and transfers of money between their own bank accounts and brokerage accounts. For example, between August 2013 and March 2015, Chan purchased Merrimack shares on at least thirty-seven different occasions, with his biggest purchase on April 21, 2014, when he placed an order to purchase 32,522 shares as opposed to the 2,000-10,000 shares he usually bought at one time.

From November 11, 2013 through February 26, 2014, Wang withdrew between $4,000 and $7,000 in cash eight times. Between December 3, 2013 and February 27, 2014, Chan made seven deposits of $6,800 to $12,000 in cash or checks to his bank account and purchased shares of Merrimack on at least four days during this time period. He sold all of his Merrimack shares on March 2, 2015. A few weeks later, Chan transferred approximately $98K from one of his brokerage accounts to a regular bank account, then wrote a $84K check which he gave to Wang, who deposited it into his own bank account on March 26, 2015.

In addition, Chan bought shares of Akebia's stock during the first week of his employment there in August 2015 and during a blackout period imposed by the company on its employees. Wang also bought shares of Akebia's stock sixteen times between August 28, 2015 and September 4, 2015. (These dates will be important when we get to our discussion below.)

FINRA's Interest Is Piqued and the Feds Close In

The Financial Industry Regulatory...