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United States v. Chan

United States District Court, D. Massachusetts

August 22, 2019

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

          POST-REMAND MEMORANDUM & ORDER ON MANDATORY RESTITUTION

          Indira Talwani United States District Judge.

         Before the court is the government's request, on behalf of Akebia Therapeutics (“Akebia”), for restitution in this insider trading criminal prosecution of Defendants Schultz Chan and Songjiang Wang. For the following reasons, the court awards restitution in the amount of $170, 476.36 for Akebia's necessary expenses incurred during participation in the investigation or prosecution of the offense. Defendant Chan shall pay 90% of this amount, or $153, 428.72, and Defendant Wang shall pay 10% of this amount, or $17, 047.64.

         I. PROCEDURAL BACKGROUND

         In July 2018, a jury convicted 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. The jury also convicted Chan of these same counts and 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. The case involved, among other actions, Chan and Wang's purchases of stock of Akebia Therapeutics (“Akebia”) while Chan was employed at Akebia.

         In a September 2018 letter (the “original request”), Akebia requested restitution pursuant to the Mandatory Victims Restitution Act (“MVRA”), 18 U.S.C. § 3663A, in the amount of $306, 899.27. In support, Akebia submitted to the probation officer conducting the presentence report a spreadsheet for fees and costs for outside counsel Ropes & Gray, LLP (“the Law Firm”), spreadsheets for contract work performed by Counsel On Call, invoices for technical support provided by StoneTurn Group, LLP (“StoneTurn”), and a victim impact statement from Akebia's General Counsel. Defendants objected that recovery must be limited to “‘necessary other expenses' incurred during the government's investigation.” Defendants' Joint Memorandum in Opposition to Akebia Restitution Request [#363] at 1 (citing Lagos v. United States, 138 S.Ct. 1684 (2018)).

         The court held sentencing hearings for Chan on November 5, 2018, and for Wang on November 13, 2018, in which terms of imprisonment, supervised release, and mandatory assessments were determined. The court held additional hearings (on November 5 and 30), and reviewed the parties' written submissions regarding forfeiture, restitution and fines prior to issuing judgments. On December 3, 2018, the court entered Judgment [#367] as to Chan and Judgment [#369] as to Wang, stating in each that the determination of restitution was deferred until January 16, 2019, and that an amended judgment and schedule of payments would be entered after the restitution issue was resolved. Both defendants and the government filed Notices of Appeal [#371], [#372], [#381].

         The government and Akebia filed supplemental briefs, and Defendants filed a reply letter. Government's Brief on the Statutory Construction of 18 U.S.C. § 3663a(B)(4) in Light of Lagos v. United States [#378]; Non-Party Akebia Therapeutics, Inc.'s Supplemental Memorandum in Support of its Request for Restitution [#380]; Defendants' Reply [#388].

         The court issued a Memorandum & Order on Mandatory Restitution [#391], concluding that Akebia was entitled to seek expenses for certain categories of work but not others, and directing the government to submit a revised request. Id. at 5; see also 18 U.S.C. § 3664(d)(4) (“[a]fter reviewing the report of the probation officer, the court may require additional documentation . . . .”). The government sought clarification as to one category, noting that at the November 30, 2018, hearing, “the Court appeared to acknowledge that Akebia was entitled to restitution for expenses incurred as part of the restitution hearing itself, ” but that the Memorandum & Order “does not appear to permit Akebia to seek restitution of such expenses.” Government's Motion for Additional Time to Respond to the Court's Order on Mandatory Restitution, For Clarification of that Order, and for Reconsideration [#392] (citing Forfeiture Hr'g Trans. 19:9-11 (Nov. 30, 2018)). The government also sought reconsideration of portions of the court's order denying certain categories of expenses. Id. at 1-2.[1]

         The court issued an Amended Memorandum & Order on Mandatory Restitution [#395], adding restitution to the permissible categories of expenses for which restitution may be sought, but otherwise denying reconsideration.

         The government subsequently filed its Revised Request for Restitution and Objection [#398], requesting restitution on behalf of Akebia in the amount of $312, 899.22. Response to Court Order [#398].[2] Defendants filed their Reply to Response [#399], noting, inter alia, that the revised request was higher, not lower, than the original request of $306, 899.27, and that certain entries had been revised.[3] Akebia filed its own Notice of Request for Restitution [#400]. Akebia represented that it had removed approximately $73, 000 in fees and expenses that it had originally claimed, and that as to all of the Law Firm expenses and some of the fees, the requests were withdrawn, but that as to other removed fees, Akebia sought reconsideration of the court's Order. Akebia did not break down the amounts that had been withdrawn versus the amounts for which Akebia sought reconsideration. Id. Akebia also stated that “[c]ertain fee entries in the revised submission were modified to more clearly recognize that [DOJ and SEC were coordinating their efforts] by noting that the documents reviewed and produced were going to both the SEC and DOJ.” Id. at 3.

         On July 26, 2019, the court requested that the First Circuit remand the case pursuant to Rule 12.1(b) for the court to issue an order regarding restitution, and the government submitted an assented-to motion for limited remand to the First Circuit. On August 8, 2019, the First Circuit issued an order granting limited remand.

         This Post-Remand Memorandum and Order is intended as the court's final order, superseding the Memorandum & Order on Mandatory Restitution [#391] and Amended Memorandum & Order on Mandatory Restitution [#395].

         II. The Mandatory Victim Restitution Act

         The Mandatory Victim Restitution Act (“MVRA”) applies to certain offenses (including crimes of violence and offenses against property under Title 18) in which an identifiable victim has suffered a pecuniary loss. 18 U.S.C. §§ 3663A(c)(1)(A)(ii), (B); see also S. REP. 104-179, 19, 1996 U.S.C.C.A.N. 924, 932 (except in circumstances relating to a plea agreement, the “mandatory restitution provisions apply only in those instances where a named, identifiable victim suffers a physical injury or pecuniary loss directly and proximately caused by the course of conduct under the count or counts for which the offender is convicted”).

         Where the MVRA applies, “the court shall order…that the defendant make restitution to the victim of the offense…” 18 U.S.C. § 3663A(a)(1). The MVRA includes four categories of restitution: (1) in the case of an offense resulting in damage to or loss or destruction of property, return of the property or payment of the value of the property; (2) in the case of an offense resulting in bodily injury to a victim, pay equal to costs of necessary medical care, therapy, rehabilitation, and lost income; (3) in the case of an offense resulting in death of the victim, the cost of necessary funeral and related expenses; and (4) in all cases where the MVRA applies, reimbursement “for lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.” 18 U.S.C. §§ 3663A(b)(1)-(4).

         III. Discussion

         Akebia does not seek restitution for any loss of property caused by the offense under 18 U.S.C. § 3663A(b)(1). Instead, the claim for restitution for expenses “associated with the Department of Justice's (‘DOJ') prosecution of the Defendants” is made exclusively as a claim for reimbursement under § 3663A(b)(4). Defendants do not dispute that the offenses of conviction (securities fraud and conspiracy to commit securities fraud) are offenses against property and that Akebia is a victim, as defined by statute, that has suffered a pecuniary loss caused by the offense. Defendants dispute that all of the claimed expenses were necessary expenses incurred during participation in the investigation or prosecution or attendance at proceedings, and they claim that the fees are not reasonable.

         The court starts first with the applicable standard, and then turns to the individual categories of expenses at issue, the appropriate hourly rates for the work, and the division of the restitution award between the two defendants.

         A. Standard

         1. The Burden of Establishing the Amount and Type of Restitution Lies with the Government

         The MVRA provides that “[a]n order of restitution under [the MVRA] shall be issued and enforced in accordance with [18 U.S.C.] section 3664.” 18 U.S.C. § 3663A(d). Under 18 U.S.C. § 3664(e), disputes as to the proper amount or type of restitution are resolved by the court on a preponderance of evidence, with the burden of demonstrating the amount of the loss sustained by the victim “on the attorney for the government.” At the same time, “a sentencing court is not expected to undertake a full-blown trial” and that “‘absolute precision is not required' in calculating restitution under the MVRA.” United States v. Naphaeng, 906 F.3d 173, 179 (1st Cir. 2018) (quoting United States v. Mahone, 453 F.3d 68, 74 (1st Cir. 2006)).

         2. Only “Necessary Expenses” Are Reimbursable

         Akebia and the government have argued that the court should follow the First Circuit's three-part test set forth in United States v. Janosko, 642 F.3d 40, 42 (1st Cir. 2011). In Janosko, the court summarized that expenses under 18 U.S.C. § 3663A(b)(4) “will pass muster if they would not have been incurred in the absence of the offense, ” id. (citing Hughey v. United States, 495 U.S. 411, 416-18 (1990) and United States v. Cutter, 313 F.3d 1, 7 (1st Cir. 2002)), “were ‘not too attenuated' in fact or time from the crime, id. (quoting United States v. Vaknin, 112 F.3d 579, 590 (1st Cir. 1997)), and were reasonably foreseeable.” Id. (citing United States v. Collins, 209 F.3d 1, 3-4 (1st Cir. 1999). In the cases cited in Janosko, the First Circuit addressed financial loss resulting from the offense itself. United States v. Janosko, 642 F.3d 40, 42 (1st Cir. 2011); see also United States v. Cutter, 313 F.3d 1, 7 (1st Cir. 2002); United States v. Vaknin, 112 F.3d 579, 589-90 (1st Cir. 1997). In such cases, the court “undertake[s] an individualized inquiry: what constitutes sufficient causation can only be determined case by case, in a fact-specific probe.” United States v. Cutter, 313 F.3d 1, 7 (1st Cir. 2002) (quoting United States v. Vaknin, 112 F.3d 579, 589-90 (1st Cir. 1997)). In this inquiry, restitution serves “as a mechanism for making a victim whole by restoring the monetary equivalent of losses suffered in consequence of the defendant's criminal activity.” United States v. Salas-Fernandez, 620 F.3d 45, 48 (1st Cir. 2010).

         But Janosko and the cases it cites predate the Supreme Court's decision in Lagos v. United States, 138 S.Ct. 1684 (2018). There the Supreme Court addressed whether fees incurred during private investigations were reimbursable expenses under § 3663A(b)(4). In the course of resolving that question, the Supreme Court examined not only the phrase “incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the ...


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