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United States v. Chan

United States District Court, D. Massachusetts

October 24, 2018

UNITED STATES OF AMERICA
v.
SCHULTZ CHAN, a/k/a Jason Chan, and SONGJIANG WANG, Defendants.

          MEMORANDUM & ORDER

          Indira Talwani United States District Judge

         A jury convicted Defendants Schultz Chan (“Chan”) and Songjiang Wang (“Wang”) of one count of conspiring to commit securities fraud in violation of 18 U.S.C. § 371 and two counts of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff(a) and 17 C.F.R. § 240.10b-5. It also convicted Chan on an additional count of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff(a) and 17 C.F.R. § 240.10b-5.

         At the close of the government's evidence, Wang filed his Motion for Judgment of Acquittal as to Songjiang Wang [#240] under Federal Rule of Criminal Procedure 29(a), which Chan joined through counsel's statement at sidebar. The court reserved decision. See Fed. R. Crim. P. 29(b). Following the jury verdict, Defendants filed their Joint Motion for Judgment of Acquittal and for a New Trial [#266] pursuant to Federal Rules of Criminal Procedure 29(c) and 33. For the following reasons, Defendants' motions are DENIED.

         I. Rule 29 Motion

         To succeed on their motions for judgment of acquittal under Federal Rule of Criminal Procedure 29, Defendants must “show that the evidence presented at trial, even when viewed in the light most favorable to the government, did not suffice to prove the elements of the offenses beyond a reasonable doubt.” United States v. Acevedo, 882 F.3d 251, 257 (1st Cir. 2018). Where, as here, the court reserves decision on a motion made before submission to the jury, the court “must decide the motion on the basis of the evidence at the time the ruling was reserved, ” that is, at the close of the government's evidence. See Fed. R. Crim. P. 29(b). In deciding the Rule 29 motion, this court must “resolve all credibility disputes in the verdict's favor.” United States v. Merlino, 592 F.3d 22, 29 (1st Cir. 2010) (internal quotations omitted). Further, it must “examine the evidence - direct and circumstantial - as well as all plausible inferences drawn therefrom, in the light most favorable to the verdict.” United States v. Meléndez-González, 892 F.3d 9, 17 (1st Cir. 2018) (internal quotations omitted). Viewing the evidence in such a light, the court's role is to determine whether “a rational fact finder could conclude beyond a reasonable doubt that the defendant[s] committed the charged crime[s].” Id.

         a. Background[1]

         This case involves Chan's purchases of stock of Merrimack Pharmaceuticals (“Merrimack”), while Wang was employed there, and Chan and Wang's purchases of stock of Akebia Therapeutics (“Akebia”), while Chan was employed there.

         Merrimack and Akebia are pharmaceutical companies in the business of developing new drugs. As part of such development, they conduct clinical trials to assess a drug's safety and effectiveness. This process involves three distinct phases. Phase 1 tests drug safety on a small group. Phase 2 tests effectiveness and further tests safety on a larger group. Phase 3 tests effectiveness, safety, and side effects on an even larger group. Trial Exhibit (“Ex.”) 1.

         Chan and Wang's relationship predated their respective employment at Akebia and Merrimack. According to Federal Bureau of Investigation (“FBI”) Special Agent Bryan McKay, Chan admitted during a June 2016 interview that he and Wang had regular communications and were part of a close-knit Chinese community.[2] According to FBI Special Agent Ryan Lane, Wang admitted during a June 2016 interview that he communicated with Chan through phone calls and text messages, occasionally met for lunch with Chan during the workday when Chan lived in Massachusetts, and stayed in touch with Chan when he lived in San Antonio, Texas, between 2010 and 2012. Lane testified that Wang stated that he and Chan discussed work, the pharmaceutical industry, and investing, although Wang said that he did not talk with Chan about Merrimack or the drugs that Merrimack was developing.[3] Text and telephone records admitted at trial confirmed Defendants' frequent communications with one another.

         i. Merrimack

         Wang began working at Merrimack as the company's Senior Manager of Statistical Programming in December 2011. Ex. 4. His duties included developing statistical programs used to analyze datasets for Merrimack's drug studies. According to Wang's supervisor, Bruce Belanger, Wang was working in 2013 on the biometrics group for the NAPOLI-1 study, a Phase 3 study of the cancer drug MM-398. Belanger Tr. 19:6-17, 57:22-58:11 [#248].

         NAPOLI-1's project leader, Peter Laivins, described NAPOLI-1 as a Phase 3 study designed to test whether MM-398 “could prolong survival in patients with metastatic pancreatic cancer.” Laivins Tr. 7:24 - 8:2 [#280]. As an “overall survival trial, ” it was structured to measure how long patients with metastatic pancreatic cancer survived after the start of receiving treatment. Id. at 10:20-24. NAPOLI-1 was comprised of two experimental arms (one MM-398 monotherapy arm and one arm that combined MM-398 therapy with other drugs) and one control arm. Id. at 16:14-16. It was an open-label, randomized trial, meaning that only physicians, and not patients, knew whether a patient was part of one of the experimental arms or the control arm. Id. at 8:11-15. NAPOLI-1 was to be complete when the 305th participant died. Id. at 11:2-4. At that time, Merrimack would stop the study and clean and analyze the data. Id. at 11:8-11.

         Merrimack General Counsel Jeffrey Munsie emailed all Merrimack personnel on July 18, 2013, to say that while Merrimack would lift a previously imposed company blackout period prohibiting employees from trading in Merrimack securities for most employees on July 22, certain Merrimack employees remained subject to a blackout based on their “knowledge of material information that has not been disclosed publicly (for instance, clinical trial data, a potential financing or a potential collaboration).” Ex. 10. Seven minutes later, Munsie sent an email to select Merrimack employees, including Wang, stating that they were subject to a continued “material information blackout due to your potential access to or knowledge of preliminary data from the MM-398 Phase 3 trial. This blackout will last through the second full trading day after we issue a press release with the top-line data for the trial.” Ex. 11.

         Laivins testified that he learned on August 28, 2013, that the NAPOLI-1 trial had reached its full enrollment goal of 405 participants. Laivins Tr. 9:19-25 [#280]. That day, Merrimack issued a press release announcing this milestone, which stated:

Currently, there is no approved treatment for patients with metastatic pancreatic cancer after gemcitabine has failed, nor is there a clear consensus on the standard of care in this patient group. Limited data suggest that without effective treatment, these patients are expected to live only a few months once they have progressed on first line therapy.

         Ex. 349. The press release also quoted Merrimack's Vice President and MM-398 Medical Director Eliel Bayever, who stated: “To our knowledge this is one of the largest controlled studies ever conducted in this patient population, which has very few treatment options.” Id.

         On November 7, Munsie sent an email to Merrimack employees stating that the company-imposed NAPOLI-1 material information blackout “will end as of the end of the day today. However, please remember that the insider trading laws still apply, so you should not trade if you have any material non-public information.” Ex. 11. When he testified at trial, Munsie explained that he sent this email because Merrimack “no longer expected to receive [its NAPOLI-1] data in that fourth quarter of 2013 or even the first quarter of 2014 and that [it] only expected it to be in the second quarter of 2014.” Munsie Tr. 32:1-6 [#281]. Because the end date of this blackout had been extended far enough, Merrimack lifted the blackout. Id. Munsie further testified that Merrimack publicly announced on the same date as the email that it now expected to receive NAPOLI-1 data in the second quarter of 2014. Id. at 32:1-4.

         NAPOLI-1's Statistical Analysis Plan, which set forth the protocols for the study, foreshadowed that, “[i]n the course of data cleaning and statistical programming development, limited Merrimack clinical and biometrics personnel may view data for individual patients that could be unblinding due to the uniqueness of the visit schedules for each arm.” Ex. 33 at 11-12. Bruce Belanger, who supervised the NAPOLI-1 biometrics group, explained that Wang's statistical programming work enabled him to view individual patient data, including enough to determine which treatment a patient received. Belanger Tr. 14:23-15:4, 19:15-17 [#248].

         Belanger testified as follows. Wang's role in the biometrics group was to supervise statistical programming. Belanger Tr. 7:14 [#248]. As part of this role, Wang developed computer programs to analyze study data. Id. at 7:17-22. In the summer of 2013, the biometrics group had access to preliminary data from MM-398. Id. at 18:10-21, 19:6-17, 57:22-58:11. As Belanger explained, Wang was working on developing the statistical programs for analyzing this data, and this work provided him with access to the live data in November 2013. Id. at 14:8-10, 19:6-11. Before the biometrics group analyzed the data, Belanger testified, Wang was using the preliminary data exported out of NAPOLI-1's electronic data capture system to test the statistical programming software that he was developing. Id. at 16:20-17:2.

         The evidence showed that in late November and early December 2013, Chan and Wang engaged in the first of several cash transactions. The government documented a $4, 000 cash withdrawal from a checking account in Wang's name on November 21, 2013, Ex. 250, and another $6, 000 cash withdrawal from that account on December 2. Id. The government further documented a December 3 cash deposit of $10, 000 into Chan's personal checking account, and a subsequent transfer of $10, 000 from that account into a newly opened Scottrade brokerage account in Chan's name (“Chan's Scottrade account”). Id. The government further documented a December 3 order to purchase $9, 979.17 of Merrimack stock placed using Chan's Scottrade account. Ex. 255.

         The government documented two cash withdrawals totaling $13, 000 from Wang's checking account on December 5, 2013, a December 6 cash deposit of $12, 000 into Chan's checking account, and a December 6 transfer of $12, 000 from Chan's checking account to the Scottrade account. Ex. 250. The government further documented that on December 6, an order to purchase a total of $12, 006.10 of Merrimack stock was placed using Chan's Scottrade account. Ex. 255.[4]

         During this same period, Chan began to make more frequent and larger purchases of Merrimack shares than he had in the past.[5] Chan and his wife, Linda Wang, [6] placed orders[7] to purchase $53, 516.92 of Merrimack stock on November 19; $58, 343.06 of Merrimack stock on November 21; and $124, 492.47 of Merrimack stock on November 26. Ex. 255.[8]

         Chan and Linda Wang continued to place orders to purchase Merrimack stock through their personal brokerage accounts. Not including Chan's purchases through the Scottrade account, Chan and Linda Wang placed orders to purchase a combined total of $272, 966.44 between December 3 and December 11, 2013. Ex. 255.

         On February 3, 2014, Chan placed three separate orders to purchase a combined total of $139, 820.98 of Merrimack stock. Id.

         On February 13 or 14, 2014, Belanger's biometrics group learned that the 305th participant in the NAPOLI-1 trial had died. Belanger Tr. 21:1-5 [#248]. Belanger testified that the occurrence of this event triggered the conclusion of the study and meant that his biometrics team would soon receive the complete dataset for analysis. Id. at 20:21-22.

         The government documented a $6, 800 transfer from Chan's personal bank account to the Scottrade account that took place on February 24, 2014. Ex. 250. The government further documented a $6, 000 cash withdrawal from Wang's personal bank account on February 25 and another $7, 000 cash withdrawal from another of Wang's personal bank accounts on February 26. Id. The government further documented a February 27 $19, 800 cash deposit into Chan's personal bank account. Id. That same day, a transfer of $13, 000 was made from Chan's personal bank account to his Scottrade account took place. Id.

         On February 27, 2014, Merrimack held an earnings call with the investing public. Laivins played a speaking role. The PowerPoint slides from the call were admitted as Trial Exhibit 18. This presentation described the three-armed nature of the NAPOLI-1 study. Laivins Tr. 16:13-20 [#280]. Slide Twenty-One described what investors should look for in the NAPOLI-1 trial results. If either one of the NAPOLI-1 experimental arms were successful, Merrimack planned to file a New Drug Application with the Food and Drug Administration (“FDA”). Id. at 16:13-20. Even if the NAPOLI-1 results did not show that MM-398 led to statistically significant longer lifespans, but nonetheless showed it had possible benefits for patients with pancreatic cancer, Merrimack planned to consider continued development of the drug. Id. at 16:21- 17:1. If NAPOLI-1 showed no meaningful difference between the experimental arms and the control arm, by contrast, this would not bode well for the drug's continued development. Id. at 17:2-5. Under all scenarios, Merrimack announced that it planned to issue a press release regarding top-line data in the second quarter of 2014, followed by a journal publication and potential presentation of the results at a medical conference. Ex. 18 at 21. On February 28, Chan placed an order from the Scottrade account to purchase $19, 592.34 of Merrimack stock. Ex. 255.

         Belanger testified that he received a primary complete dataset for the NAPOLI-1 trial from the outside vendor that handled operational aspects of the study on March 5, 2014. Belanger Tr. 22:10-12, 23:8-24:3 [#248]. This dataset was disseminated to the biometrics team for analysis. Id. at 24:5-6. Belanger further testified that Wang's role on the biometrics team required him to work with this dataset. Id. at 24:12-17. Further, Belanger testified that those in biometrics could look at the data and draw preliminary conclusions. Id. at 27:4-8.

         Between March 6 and March 24, Chan and Linda Wang purchased $515, 999.11 of Merrimack stock from accounts other than Chan's Scottrade account. Ex. 255. Chan placed an order to purchase $49, 809.99 shares of Merrimack stock on April 4, then placed another order to purchase $52, 734.99 shares that same day. Id. On April 10, Chan placed an order to purchase $8, 113.95 shares of Merrimack stock. Id.

         On April 14, at 3:50 p.m., Chan placed an order to purchase $16, 471.49 of Merrimack stock. Id. At 4:50 p.m. on April 14, Chan called Wang. Ex. 268. At 9:42 a.m. on April 15, Chan placed an order to sell $145, 666.79 of Alexion Pharmaceuticals stock. Ex. 268. Two hours later, at 11:42 a.m., Wang called Chan. Id. At 3:21 p.m., Chan placed an order to purchase 33, 400 Merrimack shares - more than any of his previous Merrimack orders. Id. That order expired. Id. The next morning, Chan placed an order to purchase 34, 610 Merrimack shares. Id. That order was cancelled. Id. On April 17, Chan entered an order to purchase 32, 522 Merrimack shares. Id. That order expired. Id.

         On Saturday, April 19, between 11:30 a.m. and 12:00 p.m., Belanger and Wang received an email providing them with access to the final dataset from the NAPOLI-1 study. Ex. 50; Ex. 51. After the biometrics team received this email, its members input the data into the statistical program that Wang had designed. Belanger Tr. 32:1-4 [#248]. According to Belanger, the team took roughly an hour to complete its final analysis of the NAPOLI-1 data. Id. at 31:23-25.

         On Monday, April 21, at 7:54 a.m., Merrimack CEO Robert Mulroy emailed all Merrimack employees and announced, “[a]s you are aware, we expect to receive data for our MM-398 trial this quarter. While the results are a great source of excitement internally, they are also a great source of anticipation externally, especially from the investing community.” Ex. 12. Mulroy further stated that a company-wide blackout was beginning as of April 21. Id. The email instructed recipients that they should not discuss that they are subject to this blackout, as “[t]he fact that a blackout is in place is itself material nonpublic information.” Id.

         On April 21, at 10:30 a.m., Chan placed an order to purchase 32, 522 Merrimack shares. Ex. 268. The order was executed on April 21 for $145, 708.55. Id. This was Chan's largest single executed order to purchase Merrimack stock. On April 25, Linda Wang placed two orders to purchase a combined total of $22, 348.13 of Merrimack shares. Ex. 255.

         On April 26 at 1:27 p.m., Belanger emailed Wang a draft version of the Merrimack press release that would announce the positive NAPOLI-1 test results to the public. Ex. 59. Belanger asked Wang to “[p]lease have a look at the attached and let me know if you have any concerns about the presentation of the results.” Id. Belanger's email forwarded a longer chain of earlier emails from other individuals, including one from Merrimack's Director of Corporate Communications that stated that the version of the release being passed along was “pretty close to final version at this point, ” and that “[w]e're still set for this to go out on May 1 at 6 am.” Id. At trial, Belanger testified that he asked Wang to review the draft press release because Wang “was very familiar with the data and the results.” Belanger Tr. 35:19-21 [#248].

         On April 28, Chan and Linda Wang placed orders to purchase a combined total of $67, 810.22 of Merrimack stock. Ex. 255. In total, the couple purchased $1, 569, 713.91 worth of Merrimack stock between November 19, 2013, and April 28, 2014. Id.

         On May 1, 2014, Merrimack issued its press release announcing the primary endpoint of overall survival in the NAPOLI-1 trial. Ex. 19. This declared that NAPOLI-1 showed a statistically significant improvement in overall survival time for those in the study's combination experimental arm. Id. The President and Chief Executive Officer of the Pancreatic Cancer Action Network was quoted as saying, “[t]he Pancreatic Cancer Action Network's goal is to double pancreatic cancer survival by 2020. The positive results of this trial demonstrate progress toward that goal in a disease for which additional treatment options are urgently needed to improve patient outcomes.” Id. The release ended with an announcement that the study was accepted for presentation at a June 2014 conference, and that Merrimack would submit a New Drug Application to the FDA for the MM-398 combination regimen in 2014. Id.

         Merrimack's share price increased from $4.39 on April 30, 2014 to $6.99 on May 1, 2014 a fifty-nine percent increase. Ex. 275. The volume of Merrimack shares traded increased from 1, 047, 388 on April 30 to 30, 804, 948 on May 1. Id.

         On May 16, 2014, Merrimack General Counsel Jeffrey Munsie emailed select Merrimack employees believed to have been aware of the NAPOLI-1 trial results prior to April 30, 2014, and informed these employees that Merrimack had received a formal inquiry from the Financial Industry Regulatory Authority (“FINRA”) “regarding trading in [Merrimack] securities prior to the announcement of our NAPOLI-1 results on May 1, 2014.” Ex. 52. Munsie requested that each of the email recipients send him their full name, Merrimack job title, home address, and the date they became aware of the top-line trial results. Id. Wang responded to the request, writing that he first became aware of the top-line trial results on April 19, 2014. Ex. 54.

         Munsie sent another email regarding the FINRA request to select Merrimack employees on August 21, 2014. Ex. 55. This email stated that “FINRA has now advanced their inquiry to the next stage by sending us the attached list of names and asking if any of you recognize any of these names.” Id. Included on the attached list was the name “Chan, Schultz, ” from “San Antonio, TX.” Ex. 56. As of September 2, Wang had not yet responded, so Munsie forwarded the August 21 email to Wang again, asking “[w]ould you be able to respond to this today?” Ex. 57. On September 3, Wang responded to Munsie, writing, “I have reviewed the list of individuals in your email attachment and couldn't recognize anyone on the list that I know.” Id.

         On March 2, 2015, Chan sold $98, 219.80 worth of Merrimack stock from his Scottrade account. Ex. 250. On March 24, $98, 427.26 was transferred from Chan's Scottrade account to his personal bank account. Id. The next day, Chan wrote a check from his personal bank account to “Songjiang Wang” for $84, 143.38. Ex. 355. The subject line of the check stated that it was ...


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