United States v. Kosinski
976 F.3d 135
2d Cir.2020Background
- Dr. Edward Kosinski was a principal investigator in a Phase III clinical trial for Regado Biosciences (REG1) and signed confidentiality and clinical-study agreements (CDA and CSRA) that required maintaining study information in strict confidence and promptly disclosing Regado stock holdings over $50,000 (Form FDA 1572).
- While serving as an investigator, Kosinski secretly accumulated roughly $250,000 of Regado stock, did not disclose the holdings, and falsely told St. Vincent’s he owned no Regado shares in a site-application form.
- After receiving confidential, nonpublic trial notices (a June 29 e‑mail pausing enrollment for allergic reactions; a July 29 e‑mail reporting a patient death), Kosinski sold all his shares (avoiding ≈$160,000 loss) and later purchased puts and traded to realize ≈$3,300 profit when the trial was publicly terminated.
- FBI interviews captured Kosinski admitting the trades were motivated by "greed and stupidity" and that he felt bad about them; he filed an updated FDA Form 1572 only after the study ended.
- Indicted under §10(b)/Rule 10b‑5 (misappropriation theory), Kosinski was convicted on two counts, sentenced principally to six months’ imprisonment, and appealed arguing no duty not to trade and insufficient willfulness.
Issues
| Issue | Gov't's Argument | Kosinski's Argument | Held |
|---|---|---|---|
| Whether Kosinski owed a duty not to trade on confidential study information | He was a temporary insider/ fiduciary to Regado by agreement and role; misappropriation of confidential information violates §10(b) | The CSRA only required confidentiality of information, not a prohibition on trading; he was an independent contractor and owed no fiduciary duty | Court: Kosinski was a temporary insider with a fiduciary‑like duty; failure to disclose and trading satisfied misappropriation liability (affirmed) |
| Whether the CSRA’s confidentiality language alone creates a duty | The agreement (and FDA disclosure rule) and the nature of the PI role create a duty of trust and confidence | Confidentiality clause without explicit anti‑trading language is insufficient; arm’s‑length/independent‑contractor label prevents fiduciary status | Court: Express agreement to keep information confidential and the PI relationship are sufficient to establish a duty; contractual label does not defeat public‑policy based insider‑trading rules |
| Whether the jury instruction on willfulness was legally sufficient and whether evidence proved willfulness | Willfulness requires knowledge that conduct is unlawful in general, not knowledge of a specific statute; evidence (sophisticated trader, lies, admissions) shows willfulness | The instruction failed to require awareness that conduct violated securities laws; evidence insufficient under a stricter standard | Court: Instruction consistent with Bryan and precedent; no reversible error and evidence supported willfulness beyond a reasonable doubt (affirmed) |
| Whether exclusion of two post‑/pre‑indictment statements violated rule of completeness or hearsay exceptions | Statements were not admissible as excited utterances and not required to complete the admitted statements | The excluded remarks (had not retained counsel; “I can’t believe this is happening”) were admissible to contextualize his admissions | Court: Exclusion was not an abuse of discretion; hearsay/excited‑utterance and completeness grounds fail (no reversible error) |
Key Cases Cited
- Dirks v. SEC, 463 U.S. 646 (1983) (temporary insiders and fiduciary duty concept)
- United States v. O’Hagan, 521 U.S. 642 (1997) (misappropriation theory of insider trading)
- Chiarella v. United States, 445 U.S. 222 (1980) (insider duty to disclose or abstain)
- United States v. Falcone, 257 F.3d 226 (2d Cir. 2001) (fiduciary/functional‑equivalent duty for misappropriation liability)
- United States v. Chestman, 947 F.2d 551 (2d Cir. 1991) (temporary insider/fiduciary factors discussion)
- United States v. Martoma, 894 F.3d 64 (2d Cir. 2017) (sufficiency review and insider‑trading principles)
- Bryan v. United States, 524 U.S. 184 (1998) (willfulness defined as acting with bad purpose; knowledge of illegality generally sufficient)
- Jackson v. Virginia, 443 U.S. 307 (1979) (standard for sufficiency of evidence)