981 F.3d 39
1st Cir.2020Background
- Two biostatisticians — Schultz Chan (Akebia) and Songjiang (Sam) Wang (Merrimack) — were friends, long-time colleagues, and active biotech investors who exchanged cash and frequent communications.
- Wang had recurring access to Merrimack's NAPOLI‑1 raw clinical data (monthly drops and final data April 2014); Chan purchased a very large block of Merrimack shares on April 21 and traded again April 28, before public release May 1, 2014.
- Chan began at Akebia on August 17, 2015 and immediately had access to the completed "11 study" data; Chan bought Akebia shares Aug. 19–21 and Wang bought Akebia shares Aug. 28–Sep. 4, before Akebia’s Sept. 8 public announcement.
- FINRA queried both companies after the public announcements; both defendants gave inconsistent or delayed responses about knowing the other and about loans/transfers; Chan gave Wang an $84,143.98 check; investigators uncovered correlated bank/brokerage activity.
- Indictment charged conspiracy to commit securities fraud and three substantive 10b‑5 counts (Chan’s Merrimack trades; Wang’s Akebia trades; Chan’s own Akebia trades). Jury convicted both; Chan sentenced to 36 months and $153,428.72 restitution; Wang to 6 months and $17,047.64 restitution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Sufficiency of evidence (motions for acquittal on conspiracy and §10b‑5 counts) | Govt: Evidence (access to MNPI, timing of communications, trading patterns, bank transfers, concealment) supports conspiracy and misappropriation/classical insider trading convictions. | Defs: Evidence too attenuated in time; variance from indictment; no proof MNPI was used to trade. | Affirmed. Jury could reasonably infer tip/misappropriation using Larrabee factors; single conspiracy proven. |
| 2. Motion to compel FINRA referral letter (Brady/Rule 16) | Govt: All underlying exhibits/attachments to FINRA letter were produced; letter adds no material/exculpatory info. | Defs: FINRA letter may have driven investigation/prosecution; letter could be Brady material. | Denial affirmed. No showing of district court abuse; defendants failed to develop/prove entitlement. |
| 3. Sentencing gain calculation (Chan) | Govt: Use market price after public disclosure (civil disgorgement approach) to measure gain. | Chan: Use realized profit on sale or value at sentencing (Eighth Circuit approach) — otherwise arbitrary and punitive based on market swings. | Affirmed. Court may use post‑disclosure market value (civil disgorgement analog). Eighth Circuit profit‑only method rejected. |
| 4. Restitution award to Akebia under MVRA | Govt: Award reasonable, necessary, and foreseeable investigation/prosecution expenses (attorneys, contract staff). | Defs: Amount excessive; some categories not "necessary" under MVRA and Lagos/Janosko principles. | Affirmed. District court acted within discretion; award had rational basis and addressed necessity/foreseeability. |
Key Cases Cited
- Salman v. United States, 137 S. Ct. 420 (2016) (discusses insider‑trading doctrine and tippee liability)
- O'Hagan v. United States, 521 U.S. 642 (1997) (formulation of the misappropriation theory)
- Dirks v. SEC, 463 U.S. 646 (1983) (personal‑benefit test for tipper liability)
- Larrabee v. United States, 240 F.3d 18 (1st Cir. 2001) (six‑factor framework for circumstantial insider‑trading proof)
- Nacchio v. United States, 573 F.3d 1062 (10th Cir. 2009) (endorses civil disgorgement approach as guide for sentencing loss/gain in insider trading)
- Mooney v. United States, 425 F.3d 1093 (8th Cir. 2005) (contrasting view that gain = actual realized profit)
- Dellosantos v. United States, 649 F.3d 109 (1st Cir. 2011) (variance and evidentiary‑spillover framework)
- Charriez‑Rolón v. United States, 923 F.3d 45 (1st Cir. 2019) (standard for reviewing sufficiency of the evidence)