FINRA Referral Letter Cited In Federal Insider Trading Appeal

Schultz "Jason" Chan, 54, of Newton, the Director of Biostatistics at a Cambridge-based biopharmaceutical company, was sentenced by U.S. District Court Judge Indira Talwani to three years in prison and one year of supervised release. Judge Talwani also ordered the defendant to either pay a fine or forfeiture of $65,000 and restitution to be determined at a later date. In July 2018, Chan was convicted by a federal jury of one count of conspiracy to commit securities fraud and three counts of securities fraud. Co-defendant Songjiang Wang, 54, of Westford, the Director of Statistical Programming at a different biopharmaceutical company, was convicted during the same trial of one count of conspiracy to commit securities fraud and two count of securities fraud. Wang is scheduled to be sentenced on Nov. 13, 2018.

From August 2013 to September 2015, Wang and Chan, who were friends, conspired to commit securities fraud by trading insider information regarding successful clinical drug trials at their respective companies. Specifically, Wang traded on inside information Chan provided regarding a clinical study conducted by Chan's employer. In addition, over a period of several months, Wang tipped Chan of clinical trial results of a Phase 3 clinical trial being conducted by his employer. Furthermore, Wang gave Chan cash, which Chan used to purchase stock shares of Wang's employer. Chan subsequently sold those shares and paid back Wang.

(i) prejudice from a constructive amendment to and variance from the second superseding indictment ("SSI"); (ii) insufficiency of evidence as to the charges in the SSI; (iii) violation of Chan's right to a fair review by the First Circuit; (iv) violation of his right to a fair trial (based on (a) a claimed prejudicial variance from the SSI, (b) a denial to his motion to produce the Financial Industry Regulatory Authority ("FINRA") referral letter, which he purports to be Brady material, and (c) non-disclosure of the grand jury materials, which he believes contain perjured testimonies); and (v) ineffective assistance of counsel.¹ Also pending is Chan's Motion to Request for Evidences [Doc. No. 485], Motion to Compel Discovery [Doc. No. 502], and Request for Exculpatory Evidence [Doc. No. 503]. . . .

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Footnote 1: Chan's motion lists seven "grounds" for relief: (1) "Violation of defendants' fundamental rights to a fair trial," (2) "Prejudicial variance and constructive [amendment] of the [SSI]," (3) "The Court of Appeals denied Defendants' right to a fair review," (4) "Count 1 of SSI," (5) "Count 2 of SSI," (6) "Count 3 of SSI," and (7) "Count 4 of SSI." Mot. to Vacate [#476]. Many of the grounds contain sub-issues. However, several of the grounds and sub-issues overlap and effectively raise the same claim. 

In reviewing this court's denial of Defendants' motion to compel discovery of the FINRA referral letter, the First Circuit found "undeveloped" the Defendants argument that the FINRA referral letter constitutes Brady material to which they were entitled. Chan, 981 F.3d at 61-62. Specifically, the First Circuit noted that Defendants "simply stated the issue along with some conjecture about what the FBI, the grandy jury, and FINRA may have relied up on during their investigations." Id. Thus, the First Circuit found that "the defendants ha[d] not given [it] any reason to conclude the district court abused its discretion when it denied their motion to compel." Id. The First Circuit similarly found that Defendants waived the argument "that a constructive amendment to the SSI occurred at trial" because they "d[id] not provide any argument or case law about how the evidence the government presented at trial constituted a constructive amendment from the SSI." Id. at 55 n.7. Defendants clearly had the opportunity to raise both issues on direct appeal but failed to do so properly. 

In his Motion to Vacate [Doc. No. 476], Chan does not explain why on direct appeal he did not provide "any argument about how the district court abused its discretion when it denied the defendants' pre-trial motion to compel" the FINRA referral letter, id. at 62, nor do more than "define the concept [of constructive amendment] and mention it a couple of times," id. at 55 n.7, resulting in the First Circuit finding both arguments waived. Accordingly, Chan's Motion to Vacate [Doc. No. 476] is denied with respect to the arguments that (i) a prejudicial constructive amendment to the SSI occurred at trial and (ii) the FINRA referral letter constitutes undisclosed Brady material, violating his right to a fair trial. 

SIDE BAR: If the federal grand jury investigation and subsequent trial proceeded while DOJ knew or should have known about any purportedly exculpatory information, then the Supreme Court held in Brady v. Maryland that the withholding of material evidence by the prosecutors as to the determination of either guilt or punishment of a criminal defendant violates the defendant's constitutional right to due process. As you may imagine, Brady is a foundational legal principle when it comes to a Defendant's Due Process rights in a criminal trial. 

  As D. Mass saw it, Chan had failed to raise his Brady issue pertaining to the FINRA referral letter at trial or on appeal, and, as such, he had had waived his right to argue that issue at this late date. As to why this is all being relitigated at the District Court after the First Circuit seems to have disposed of the same issues is somewhat puzzling -- notably, the D. Mass Memo/Order found Chan's effort to rehash as procedurally barred from consideration by the lower court after the higher court issued its orders.

Chan contends that FBI agent McKay's trial testimony proves that FBI agent Cirilli fabricated the criminal complaint affidavit, in which he relied on the FINRA referral letter, to secure the indictment against Chan. Mot. to Vacate 4 [Doc. No. 476]. Further, Chan "believes[s] that perjured testimonies were presented to the grand jury to obtain the indictments . . . which render the indictments invalid." Id. Chan concludes that he has "shown a particularized need[] for disclosure of grand jury minutes." Id. The court disagrees.

[S]ince Chan was convicted by a petit jury, which never reviewed the FINRA referral letter nor heard the allegedly perjurious testimony, the indictment did not prejudice Chan, and the court may not dismiss it.

Moreover, absent his conclusory assertion that trial testimony proves misconduct in the grand jury proceedings, Chan provides no basis on which the court can find malfeasance. Federal Rule of Criminal Procedure 6(e)(3)(E) "is not an invitation to engage in 'fishing expeditions' for misconduct in grand jury proceedings 'when there are no grounds to believe that any wrongdoing or abuse has occurred.'" George, 839 F. Supp. 2d at 437 (quoting United States v. Rodriguez- Torres, 570 F.Supp.2d 237, 241 (D.P.R.2008)). By making the speculative allegation that the grand jury received perjured testimony, Chan fails to satisfy his burden of demonstrating a particularized need to compel production of the grand jury materials. Accordingly, Chan's Motion to Vacate [476] with respect to his claim that his right to a fair trial was violated by the non-disclosure of the grand jury materials is denied.

While Chan does not explicitly raise an ineffective assistance claim in the Motion to Vacate [Doc. No. 476], he does argue that his lawyer "refused to present" the argument that "government agents tampered with [] exculpatory evidence[.]" Mot. to Vacate 9 [Doc. No. 476]. The evidence that Chan alleges the government tampered with is an email from Karen Annis to Chan on August 21, 2015 ("Annis e-mail"), and Akebia's response to Request 1 made by the SEC on June 8, 2016 ("Akebia response"). Id. The court has previously determined that Chan's assertion raises an ineffective assistance of counsel claim because "Chan is alleging his lawyer refused to present an argument that was supported by evidence." Mem. & Order 1-2 [Doc. No. 487].

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• DOJ
• Securities Fraud
• Conspiracy to Commit Securities Fraud
• FINRA
• FINRA Referral Letter
• Brady
• Ineffective Assistance of Counsel
• 1Cir
• BrokeAndBroker
• Bill Singer