Federal Court Denies Reconsideration of 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: Belated Brady?

  The United States Supreme Court held in Brady v. Maryland 373 U.S. 83 (1963)

https://supreme.justia.com/cases/federal/us/373/83/#tab-opinion-1944421 that the withholding of material evidence by prosecutors as to the determination of either guilt or punishment of a criminal defendant violates the defendant's constitutional right to due process. 

    As D. Mass saw it, Chan had failed to raise at trial or on appeal his Brady issue pertaining to the FINRA referral letter; and, as such, he had had waived his right to argue that issue at this late date via a Motion to Vacate. 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 was procedurally barred from consideration by the lower court after the higher court had 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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[C]han contends that the court erred in finding that: (i) issues raised on a motion for a new trial, as well as issues either raised on direct appeal or that could have been, are procedurally barred from being raised on a motion to vacate under 28 U.S.C. § 2255 ("§ 2255"), and relatedly the court should reconsider whether (a) insufficient evidence exists for each of the counts Chan was convicted of and (b) a prejudicial constructive amendment to the second superseding indictment ("SSI") occurred at trial; and (ii) Chan's right to a fair trial was not violated where (a) Chan has not demonstrated a particularized need for the grand jury testimony and (b) the indictment did not prejudice Chan.

1. Grand Jury Materials and Indictment 

Chan requests that the court reconsider its finding that Chan has not demonstrated a particularized need for the grand jury testimony. Mot. for Recons. & Recusal 3 [Doc. No. 507]. Chan contends that the September 13, 2016 indictment and March 28, 2017 superseding indictment are invalid where FBI agent Cirilli provided false testimony to the grand jury and fabricated his affidavits upon which the respective charging documents relied. Id. at 2-3.¹ In support of his contention that Cirilli provided perjured testimony to the grand jury, Chan cites to (i) specific portions of FBI agent McKay's trial testimony; (ii) trial evidence, including an email from Karen Annis to Chan ("Annis e-mail"), a Financial Industry Regulatory Authority ("FINRA") report, and Chan's trade record; and (iii) the fact that Cirilli did not testify at trial. Id. However, none of the evidence that Chan presents in his motion for reconsideration is newly discovered. Indeed, Chan's previous Motion to Vacate [Doc. No. 476] generally relied upon the same evidence. ² 

Moreover, Chan has not demonstrated that the court's finding in the Memorandum and Order [Doc. No. 504] that the SSI did not prejudice Chan and, therefore, may not be dismissed was based on a manifest error of law or was clearly unjust. Citing United States v. Agurs, 427 U.S. 97 (1976) and United States v. Basurro, 497 F.2d 781 (9th Cir. 1974), Chan contends that the court misapplied the law when it found allegedly perjurious testimony presented to the grand jury harmless where that same testimony was not presented to the petit jury that convicted Chan. See Mot. for Recons. & Recusal 6 [Doc. No. 507]; see also Mem & Order 8 [Doc. No. 504]. The first case cited by Chan-Agurs- recognizes that the "the Court has consistently held that a conviction obtained by the knowing use of perjured testimony is fundamentally unfair, and must be set aside if there is any reasonable likelihood that the false testimony could have affected the judgment of the jury," but that holding pertains to the petit jury charged with determining guilt and not to the grand jury charged only with determining probable cause. Agurs, 427 U.S. at 103, holding modified by United States v. Bagley, 473 U.S. 667 (1985). 

The second case cited by Chan-Basurto-in which the Ninth Circuit held that "the prosecuting attorney was under a duty to notify the court and the grandy jury" when "he learned of the perjury before the grand jury," Basurto, 497 F.2d at 785, "has been accorded mixed reviews, even by the court which decided it," United States v. Mangual-Corchado, 139 F.3d 34, 41 (1st Cir. 1998) (citing United States v. Bracy, 566 F.2d 649, 654-55 (9th Cir. 1977), stay denied, 435 U.S. 1301, 98 S.Ct. 1171, 55 L.Ed.2d 489 (Rehnquist, Circuit Justice 1978) (suggesting that government's use of grand jury testimony which later proves to have been perjurious never implicates defendant's Fifth Amendment rights), cert. denied, 439 U.S. 818, 99 S.Ct. 79, 58 L.Ed.2d 109 (1978)). 

"[T]he Court provided the applicable standard for determining when errors before the grand jury warrant dismissal of an indictment: '[A]s a general matter, a district court may not dismiss an indictment for errors in grand jury proceedings unless such errors prejudiced the defendants.'" United States v. Flores-Rivera, 56 F.3d 319, 328 (1st Cir. 1995) (citing Bank of Nova Scotia v. United States, 487 U.S. 250, 254 (1988)). "[E]rrors before the grand jury will often be deemed harmless if the defendants were subsequently and properly convicted before an impartial petit jury." Id. Chan's motion for reconsideration fails to address the court's key finding with respect to this issue: "Chan was convicted by a petit jury, which never reviewed the FINRA letter nor heard the allegedly perjurious testimony" and therefore "the indictment did not prejudice Chan." Mem & Order 8 [Doc. No. 504]. 

Accordingly, to the extent that Chan requests that the court reconsider its finding that Chan did not show a particularized need for the grand jury materials and that because Chan suffered no prejudice from the indictment the court may not dismiss it, the motion is denied.

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Footnote 1: Chan takes issue with the court's characterization in its Memorandum and Order [Doc. No. 504] that Chan previously argued 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. for Recons. & Recusal 4 [Doc. No. 507]. The court sees no issue with this characterization where in his motion to vacate Chan contended that "FBI agent McKay's trial testimonies prove that, [FBI agent Cirilli's] criminal complaint affidavit against Chan was fabricated . . . . Defendants believe that, the criminal complaint affidavit was based on the FINRA referral letter, [and] both were used to secure the indictment against Chan on 09/13/2016." Mot. to Vacate 4 [Doc. No. 476]. 

Footnote 2: Chan further notes that "government agents did not object to the fact that Petitioner had demonstrated particularized need for Cirilli's grand jury testimonies . . . . [and] never claimed that grand jury secrecy outweighs the interest of justice in this stage of the case." Id. at 3. That may be the case, but that does not alter the fact that "defendant bears the burden of showing a 'particularized need' for the requested material." United States v. George, 839 F. Supp. 2d 430, 437 (D. Mass. 2012) (quoting Douglas Oil Co. v. Petrol Stops Nw., 441 U.S. 211, 222 (1979)). 

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