United States v. Kosinski ( 2020 )

18-3065
United States v. Kosinski
United States Court of Appeals
for the Second Circuit
AUGUST TERM 2019
No. 18-3065
UNITED STATES OF AMERICA,
Appellee,
v.
EDWARD J. KOSINSKI,
Appellant.
On Appeal from the United States District Court
for the District of Connecticut
Vanessa L. Bryant, Judge.
ARGUED: OCTOBER 30, 2019
DECIDED: SEPTEMBER 22, 2020
Before: CABRANES and RAGGI, Circuit Judges, and KORMAN, District Judge. *
*Judge Edward R. Korman, United States District Judge for the Eastern
District of New York, sitting by designation.
1
Dr. Edward Kosinski served as a principal investigator for a clinical
trial of a cardiac drug designed to prevent blood clotting. After he learned
that patients suffered adverse effects during the trial, Kosinski traded on that
nonpublic inside information to avoid a loss and earn a profit in the shares
of the pharmaceutical company for which he was principal investigator. He
was convicted of two counts of insider trading in violation of Section 10(b)
of the Securities Exchange Act of 1934, and Rule 10b–5 promulgated
thereunder, in the United States District Court for the District of Connecticut
(Bryant, J.) and was sentenced principally to six months’ incarceration. On
appeal, Kosinski argues primarily that he was under no duty to refrain from
trading based on nonpublic inside information, and that there was
insufficient evidence that he committed a willful violation of the law. We
conclude that Kosinski did have a duty to refrain from trading on nonpublic
inside information and that the evidence was sufficient to convict Kosinski.
We further conclude that the trial judge’s jury instructions and evidentiary
rulings contained no reversible error.
AFFIRMED.
ALEXANDRA A.E. SHAPIRO (Philip W. Young, on the
brief), Shapiro Arato Bach LLP, New York, New
York, for Defendant-Appellant.
HEATHER L. CHERRY, Assistant United States
Attorney (Jonathan N. Francis and Sandra S. Glover,
on the brief) for John H. Durham, United States
Attorney for the District of Connecticut, New Haven,
Connecticut, Appellee.
2
KORMAN, District Judge:
Dr. Edward Kosinski was a principal investigator in a clinical trial (the
“Study”) for a heart-related drug developed by Regado Biosciences, Inc.
(“Regado”), a publicly traded biopharmaceutical company whose stock was
traded on NASDAQ. Regado’s pharmaceutical product was designed to
prevent blood clotting in patients undergoing heart procedures. As a
principal investigator in the Study, Kosinski was responsible for recruiting
the subjects, determining their suitability, monitoring their tolerance and
reaction and reporting the results. To that end, he persuaded twenty patients
who were part of his practice to participate in the Study, for which Regado
paid Kosinski a fee of $80,000. Further, Kosinski was responsible for
“making sure that the patients understand the risks and the reason why
they’re being enrolled, and getting informed consent and then making sure
that they’re getting the best level of care and following . . . good clinical
practice.” Gov’t App’x at 547.
During the course of the Study, Kosinski, who was also a sophisticated
stock trader with a portfolio exceeding $11 million, secretly accumulated
3
approximately $250,000 of Regado stock in breach of his agreement to
disclose if his holdings exceeded $50,000. Then, after being advised by
Regado of information likely to affect the trial adversely, Kosinski traded
based on that nonpublic inside information.
First, Kosinski sold Regado stock when he was informed the Study
would be suspended due to safety concerns, avoiding a loss of $160,000 at
the expense of purchasers who did not have access to the same nonpublic
inside information. Then, when informed that a patient had died and that
the Study would be suspended indefinitely, Kosinski bet against Regado’s
stock by purchasing put options from which he realized a net profit of $3,300
when Regado publicly announced that it had permanently terminated the
clinical trial. Kosinski later admitted to the FBI that these trades were based
on “greed and stupidity” and that “he didn’t feel good about making those
trades when he had made them.” His indictment, trial, and conviction for
violating Section 10(b) of the Securities Exchange Act of 1934 resulted, and
he was sentenced principally to six months’ imprisonment and a $500,000
fine. Kosinski is free on bail pending this appeal.
4
On appeal, Kosinski challenges the sufficiency of the evidence
presented at trial, as well as certain of the district court’s jury instructions
and evidentiary rulings. Because Kosinski raises a sufficiency challenge, we
“view the evidence in the light most favorable to the government, crediting
every inference that could have been drawn in the government’s favor, and
deferring to the jury’s assessment of witness credibility and its assessment
of the weight of the evidence.” United States v. Martoma, 894 F.3d 64, 72 (2d
Cir. 2017); see also Jackson v. Virginia, 443 U.S. 307, 319 (1979) (“upon judicial
review all of the evidence is to be considered in the light most favorable to
the prosecution”). Moreover, to the extent he challenges the district court’s
legal conclusions, our review is de novo. United States v. Castello, 611 F.3d 116,
119 (2d Cir. 2010).
BACKGROUND
In 2005, Regado commenced a clinical trial of its cardiac drug, known
as REG1 Anticoagulation System (“REG1”), to test whether it could safely
and effectively reduce the incidence of heart attacks, strokes, and deaths in
patients undergoing angioplasty procedures to unblock clogged arteries.
5
Clinical drug trials involve multiple phases. Before human trials begin,
researchers ordinarily test the drug in animals. Then, phase one analyzes
whether the drug is safe in humans. Phase two studies a larger patient
population, examining both safety and efficacy. If these two phases succeed,
the drug company, which is the “sponsor,” conducts phase three, a
comprehensive study of thousands of patients at hundreds of study sites. If
phase three is successful, the sponsor can seek final Food and Drug
Administration (“FDA”) approval to market the drug. Kosinski only
participated in the third phase of the REG1 trial at a single site, although the
Study involved a large, heterogenous population of patients at multiple
sites.
For phase three, Regado hired the Cleveland Clinic Foundation, which
supports research into cardiovascular drugs, to help write the Study
protocol and administer the Study by choosing sites and principal
investigators as well as by handling communication, site contract
negotiation and execution, and payment for services.
6
On June 12, 2013, the Cleveland Clinic Foundation, on behalf of
Regado, and the Connecticut Clinical Research, LLC (the “LLC”), of which
Kosinski was president and through which he conducted multiple clinical
trials for various drugs, entered into a Confidential Disclosure Agreement
(the “CDA”) to determine whether Kosinski would serve as a principal
investigator for the Study. Kosinski signed the CDA on behalf of the LLC.
The CDA allowed employees of the LLC to receive confidential information
from Regado—such as the Study’s protocol—which provided information
subject to a restriction on disclosure and use.
On January 22, 2014, the Cleveland Clinic Foundation, on behalf of
Regado, and the LLC, with Kosinski signing as president, entered into a
superseding contract called a Clinical Study and Research Agreement
(“CSRA”), pursuant to which Kosinski became a principal investigator for
one of the many sites of phase three of the Study. Kosinski again signed the
CSRA as the LLC’s president. He also acknowledged and agreed to the
CSRA in his personal capacity as the principal investigator.
7
The CSRA included two key interrelated provisions that are
particularly relevant to this appeal: Kosinski was required (1) to maintain in
“strict confidence” all the information with which he was provided to enable
him to perform as principal investigator; and (2) to complete a financial
disclosure form called a Form FDA 1572, which in turn required that he
“promptly” disclose to Regado if the value of his Regado stock exceeded
$50,000. The form stated that such disclosure would be “of concern to [the]
FDA.”
This disclosure form was intended to safeguard against potential
conflict of interest by those involved in clinical trials. Federal regulations
state that a “potential source of bias . . . is a financial interest of the clinical
investigator in the outcome of the study,” which includes “an equity interest
in the sponsor of the covered study.” 21 C.F.R. § 54.1(b). The required
stockholding disclosure would thus allow sponsors such as Regado to
identify if principal investigators had a conflict, which could not only
endanger patient safety but also possibly delay or interfere with the FDA’s
approval process.
8
Sponsors, such as Regado, are motivated to obtain FDA approval for
their product, along with the attendant financial rewards. That financial
interest is the motivation for the sponsor vesting responsibility for a clinical
trial in principal investigators, with whom the sponsor does not have direct
contact but with whom the sponsor works through intermediaries like the
Cleveland Clinic Foundation. Likewise, it is the reason for requiring the
sponsor to disclose to the FDA any financial entanglements between itself
and the principal investigator, along with any steps it had taken to minimize
the risk of bias. See 21 C.F.R. § 54.4(a). As a Cleveland Clinic Foundation
executive testified at trial, these conflict-avoiding practices and the related
FDA regulations principally address the concern that “[i]f there’s a safety
issue, [conflicted study participants] may not report it if [they] think it’s
going to negatively impact the trial. That would be a very big concern
actually for patient safety. Or, you know, anything else that [persons] may—
[persons] may sway the trial to go the way [they] want it to go if [they] have
a financial interest.” Gov’t App’x at 72–73; see 45 C.F.R. § 46.101 et seq.
9
I. Kosinski’s Trading And Related Representations
Kosinski began purchasing Regado shares on October 8, 2013, four
months after entering into the CDA in June 2013, acquiring 2,000 Regado
shares that day, and 2,000 more the next day. On October 16, 2013, he
executed an application to St. Vincent’s Medical Center in Bridgeport,
Connecticut, for permission to administer Regado’s drug to patients there
for purpose of the Study. In that application, he falsely represented that he
did not own any Regado shares.
In February 2014, shortly after the LLC had entered into the CSRA,
Kosinski bought another 2,000 Regado shares, and by the end of that month,
he owned well over $50,000 of Regado stock, triggering his obligation to
“promptly” disclose that fact to Regado, which he failed to do. In April and
May of 2014, Kosinski bought an additional 31,000 Regado shares, bringing
the total value of his holdings to around $250,000. During these months,
Kosinski failed to make the required disclosure to Regado. As far as Regado
knew, the value of Kosinski’s interest never exceeded $50,000.
10
On Sunday, June 29, 2014, while the Study was underway, Kosinski
received an email from the Study’s management team. 1 The email alerted
all principal investigators that the enrollment of new patients was being put
on hold until Wednesday, July 2, 2014 because there had been “several
allergic reactions over the past few weeks, and the [data safety monitoring
board] and trial leadership need time to review the recent events
thoroughly.” On Monday, June 30, 2014, the morning after he received the
email and before the information contained therein was made public,
Kosinski sold all of his Regado shares. Thereafter, on Wednesday, July 2,
2014, Regado issued a press release announcing that it was suspending the
Study due to “serious adverse events related to allergic reactions,” and
Regado’s stock price fell approximately 58% the next day. If Kosinski had
not sold all of his shares beforehand, their value would have been
diminished by around $160,000.
1 The management team performs the high-level decision-making regarding
trial structure and safety and includes representatives from Regado as the
sponsor and from the Cleveland Clinic Foundation as the trial administrator,
as well as a data safety monitoring board, which is responsible for advising
the sponsor on patient safety-related issues.
11
On Tuesday, July 29, 2014, Kosinski received another email from the
trial management team to all of the principal investigators. This email
revealed that a patient at another Study site had died from an allergic
reaction to the drug, and that the Study was on hold pending an assessment
by the Study’s data safety management board. Two days later, before the
patient’s death was made public, Kosinski placed a bet that Regado’s share
price would fall: He bought 50 put options that collectively would entitle
him to sell up to 5,000 Regado shares for $2.50 each by October 18, 2014. On
August 25, 2014, Regado issued a press release announcing that the trial was
being permanently halted due to the frequency and severity of allergic
reactions. That same day, Regado’s share value dropped from around $2.80
to around $1.10. On August 28, 2014, Kosinski bought 5,000 Regado shares
for around $1.10 each and then used his put options to sell the same number
of shares for $2.50 each. Kosinski’s net profits from these transactions was
around $3,300. 2
2Kosinski’s net profit was less than the difference between the value of the
5,000 shares he purchased on August 28, 2014, and the price for which he
12
On September 29, 2014, a month after the Study was terminated, the
Cleveland Clinic Foundation sent Kosinski a letter that, among other things,
offered a “reminder” that “[i]f any investigator has any relevant financial
interest changes related to Regado Biosciences for 1 year following
termination of the study, please send updated Financial Disclosure Forms to
Regado.” In response to this letter, on October 1, 2014, after the Study
terminated and when he no longer held any stock in Regado, Kosinski
executed a Form FDA 1572, as he was required to do under the CSRA. That
was the first FDA Form 1572 that Kosinski had filed since the initial one he
filed in December 2013 when he executed the CSRA on behalf of the LLC,
notwithstanding his obligation to “promptly” update the form when the
value of his Regado shares rose above $50,000, which occurred in February
2014.
sold them because Kosinski paid a $0.70 premium for each share the put
options entitled him to sell.
13
II. Kosinski’s Statements to the FBI
James McGoey, an FBI agent, interviewed Kosinski in person for
nearly an hour and a half in June 2016. Agent McGoey also called Kosinski
on the telephone in August 2016. During that call, which lasted about five
minutes, McGoey told Kosinski that he had been indicted for securities
fraud. McGoey testified that Kosinski told him that it was a “stupid thing
that he did and he didn’t feel good about making those trades when he had
made them,” and that Kosinski used the words “greed and stupidity” to
describe what caused him to make those trades. 3
ANALYSIS
Kosinski was tried and convicted of two counts of violating § 10b of
the Securities Exchange Act and Rule 10b–5. One count was based on the
sale of all his shares shortly after receiving the June 2014 email announcing
the Study’s suspension, and the other count was based on his purchase of 50
put options shortly after learning the Study would be canceled.
3As discussed infra at 52, Kosinski also told McGoey that he “can’t believe
this is happening” and that he had not retained counsel. Gov’t App’x at 668.
14
Kosinski challenges these convictions, arguing principally that the
evidence was legally insufficient to prove that he breached a duty owed to
Regado and that the district court’s jury instruction was erroneous. He
maintains that he agreed only to keep the information he received in the
course of the Study in strict confidence, which he claims he did, and that
secretly trading on the basis of information was not a breach of his
agreement. Whatever merit Kosinski’s argument might have had Regado
brought a civil action for breach of contract, it fails in the context of a criminal
prosecution for trading on nonpublic inside information that was not
available to those upon whom he unloaded his shares without making the
requisite disclosure.
Kosinski further challenges his conviction by arguing that the district
court gave the jury an improper instruction on willfulness and that, when
assessed under the proper standard, the evidence presented at trial was
legally insufficient to prove that he acted willfully. Finally, Kosinski
challenges several evidentiary rulings.
We address each argument in turn.
15
I. Kosinski Had A Duty To Regado Not To Trade in Regado’s Stock
Absent Disclosure
Section 10(b) of the Securities Exchange Act of 1934 prohibits the
use of “any manipulative or deceptive device or contrivance” in
connection with the purchase or sale of securities. 15 U.S.C. § 78j(b).
Similarly, Rule 10b–5 makes it unlawful to “employ any device,
scheme, or artifice to defraud, [or] . . . to engage in any act, practice, or
course of business which operates or would operate as a fraud or
deceit upon any person, in connection with the purchase or sale of any
security.” 17 C.F.R. § 240.10b–5. “In an inside-trading case this fraud
derives from the inherent unfairness involved where one takes
advantage of information intended to be available only for a corporate
purpose and not for the personal benefit of anyone.” Dirks v. SEC, 463
U.S. 646, 654 (1983) (internal quotation omitted). We conclude that
Kosinski owed a duty to Regado not to trade in Regado’s stock based
on confidential, nonpublic information, absent disclosure to Regado.
16
A. Kosinski Owed A Duty to Regado As A “Temporary
Insider”
In United States v. O‘Hagan, Justice Ginsburg succinctly set forth the
two theories under which a defendant may be found guilty of insider
trading: the classical and misappropriation theories.
Under the “traditional” or “classical theory” of insider trading
liability, § 10(b) and Rule 10b–5 are violated when a corporate
insider trades in the securities of his corporation on the basis of
material, nonpublic information. Trading on such information
qualifies as a “deceptive device” under § 10(b), we have
affirmed, because “a relationship of trust and confidence [exists]
between the shareholders of a corporation and those insiders
who have obtained confidential information by reason of their
position with that corporation.” Chiarella v. United States, 445 U.S.
222, 228 (1980). That relationship, we recognized, “gives rise to a
duty to disclose [or to abstain from trading] because of the
‘necessity of preventing a corporate insider from . . . tak[ing]
unfair advantage of . . . uninformed . . . stockholders.’” Id., at
228–229 (citation omitted). The classical theory applies not only
to officers, directors, and other permanent insiders of a
corporation, but also to attorneys, accountants, consultants, and
others who temporarily become fiduciaries of a corporation. See
Dirks v. SEC, 463 U.S. 646, 655, n. 14 (1983).
The “misappropriation theory” holds that a person commits
fraud “in connection with” a securities transaction, and thereby
violates § 10(b) and Rule 10b–5, when he misappropriates
confidential information for securities trading purposes, in
breach of a duty owed to the source of the information. Under
this theory, a fiduciary's undisclosed, self-serving use of a
17
principal's information to purchase or sell securities, in breach of
a duty of loyalty and confidentiality, defrauds the principal of
the exclusive use of that information. In lieu of premising
liability on a fiduciary relationship between company insider
and purchaser or seller of the company's stock, the
misappropriation theory premises liability on a fiduciary-
turned-trader's deception of those who entrusted him with
access to confidential information.
521 U.S. 642, 651–52 (1997).
Both theories advance the “animating purpose of the Exchange Act: to
insure honest securities markets and thereby promote investor confidence.”
Id. at 658. They are based on the assumption that “investors likely would
hesitate to venture their capital in a market where trading based on
misappropriated nonpublic information is unchecked by law.” Id. Both
theories seek to avoid the unfairness that “[a]n investor’s informational
disadvantage vis-à-vis the misappropriator with material, nonpublic
information stems from contrivance, not luck; it is a disadvantage that
cannot be overcome with research or skill.” Id. at 658–59. These theories are
consistent with the common law principle that “a person who acquires
special knowledge or information by virtue of a confidential or fiduciary
relationship with another is not free to exploit that knowledge or
18
information for his own personal benefit[.]” Diamond v. Oreamuno, 24 N.Y.2d
494, 497 (1969).
This case was prosecuted under the misappropriation theory.
Specifically, as we have held, “a person violates Rule 10b–5 when he
misappropriates material nonpublic information in breach of a fiduciary
duty or similar relationship of trust and confidence and uses that
information in a securities transaction.” United States v. Falcone, 257 F.3d 226,
230 (2d Cir. 2001) (Sotomayor, J.) (internal citation omitted). We have
explained that
a fiduciary relationship, or its functional equivalent, exists only
where there is explicit acceptance of a duty of confidentiality or
where such acceptance may be implied from a similar
relationship of trust and confidence between the parties.
Qualifying relationships are marked by the fact that the party in
whom confidence is reposed has entered into a relationship in
which he or she acts to serve the interests of the party entrusting
him or her with such information.
Id. at 234–35.
19
 Significantly, a qualifying relationship does not require one to be a
traditional corporate insider. The Supreme Court has explained that,
[u]nder certain circumstances, such as where corporate
information is revealed legitimately to an underwriter,
accountant, lawyer, or consultant working for the corporation,
these outsiders may become fiduciaries of the shareholders. The
basis for recognizing this fiduciary duty is not simply that such
persons acquired nonpublic corporate information, but rather
that they have entered into a special confidential relationship in
the conduct of the business of the enterprise and are given access
to information solely for corporate purposes.
Dirks, 463 U.S. at 655 n.14. We have described such individuals as
“temporary insiders.” United States v. Chestman, 947 F.2d 551, 567 (2d Cir.
1991) (en banc).
While the language in Dirks was in the context of the traditional
classical theory of insider trading, it likewise encompasses those who have
entered into a “special confidential relationship,” Dirks, 463 U.S. at 655 n.14,
that has enabled them to misappropriate information that was “intended to
be available only for a corporate purpose and not for the personal benefit of
anyone,” id. at 654 (internal quotation omitted). This court has recognized
that the classical and misappropriation theories are “overlapping,”
20
sometimes proscribing the same or similar conduct. United States v. Newman,
773 F.3d 438, 445 (2d Cir. 2014), abrogated on other grounds by Salman v. United
States, 137 S. Ct. 420 (2016). Thus, we have treated the theories as intertwined
branches of the same tree, explaining that in both cases, it is the “breach of a
fiduciary duty or other duty of loyalty and confidentiality that is a necessary
predicate to insider trading liability.” Martoma, 894 F.3d at 73. 4
Temporary insiders are therefore forbidden from trading under both
the classical and misappropriation theories without the requisite disclosure.
Indeed, the only meaningful difference between the two theories is the
victim of the fraud. Where, as here, a trader owes a duty to both the
shareholders with whom he trades and the source of the confidential
information on which he trades, he must make disclosure to both. See
O’Hagan, 521 U.S. at 655 n.7 (where “a person trading on the basis of
4 In Martoma, we also observed that “[a]lthough many of the cases refer to
‘insiders’ and ‘fiduciary’ duties because those cases involve the ‘classical
theory’ of insider trading, the Dirks articulation of tipper and tippee liability
also applies under the misappropriation theory, where the misappropriator
violates some duty owed to the source of the information.” Martoma, 894
F.3d at 73 n.5.
21
material, nonpublic information owes a duty of loyalty and confidentiality
to two entities or persons . . . but makes disclosure to only one, the trader
may still be liable”).
Turning to this case, we view Kosinski’s role as a principal investigator
to fit squarely within Dirks’s recognition of “temporary insiders” who play
fiduciary-like roles, such that he could have been successfully prosecuted
under the classical theory (because he failed to disclose to his trading
counterparty that he was trading on inside information) and under the
misappropriation theory (because he failed to disclose to Regado that he was
trading on inside information that he had been given in confidence).
Chestman, 947 F.2d at 565 (citing Dirks, 463 U.S. at 655 n.14). Kosinski was
entrusted with Regado’s information solely because of his duty to ensure the
integrity and accuracy of the phase three clinical trial, as well as the health
of his patients. Regado provided Kosinski the information he traded upon
because that information was integrally related to the safety of the Study,
ultimately necessitating its termination. Indeed, Kosinski would not have
been provided this information absent his “explicit acceptance of a duty of
22
confidentiality.” Falcone, 257 F.3d at 234. Moreover, Kosinski further agreed
to disclose if his holding of Regado stock exceeded $50,000, which
presumably would have triggered Regado’s closer oversight of Kosinski (or
even his termination) given its significance to the FDA, and which he failed
to do. Under these circumstances, Kosinski qualified as a temporary insider
of Regado.
Since it is uncontested that Kosinski traded on Regado’s nonpublic
inside information without disclosure to Regado, he therefore
“misappropriate[d] confidential information for securities trading purposes,
in breach of a duty owed to the source of the information.” O’Hagan, 521
U.S. at 652. That failure to disclose satisfied the element of deceit required
by § 10(b) and Rule 10b–5. Id.
B. Kosinski Had A Fiduciary-Like Relationship With Regado
Separate and apart from whether Kosinski qualified as a “temporary
insider” of Regado, we conclude that Kosinski’s relationship with Regado
was fiduciary in nature because it was a relationship based upon trust and
confidence. Kosinski expressly agreed to keep Regado’s information
23
confidential. Moreover, Regado entrusted Kosinski with the administration
of a newly-created drug to human beings. It was presumably Regado’s faith
and confidence in Kosinski’s reputation as a prominent New England
cardiologist, his experience as a principal investigator, and his willingness
to provide access to his patients, that caused Regado to secure Kosinski’s
services. By selecting Kosinski, Regado chose a distinguished physician,
knowing that the Study could become a matter of life and death—as indeed
it did at another site—because “you're asking patients to put their lives at
stake when they participate.” Gov’t App’x at 310. Kosinski’s experience and
skill were important to Regado avoiding such an outcome and ultimately to
Regado receiving FDA approval for REG1 and the financial reward that
would accompany it. Regado accordingly entered into a relationship with
Kosinski that was “marked by” his service of “the interests of the party
entrusting him [] with such information.” Falcone, 257 F.3d at 234–35
(internal citation omitted). Thus, Kosinski regularly received information
from Regado regarding the drug trial, including the confidential information
that he ultimately misappropriated and upon which he traded.
24
Such trading vitiates the principal investigator’s critical function, by
fixing his attention on his own monetary gain and depriving the company
of the independent assessment required for FDA approval. Principal
investigators are charged with caring for the well-being of their patients, not
the ultimate success of the drug. But by appropriating the sponsor’s
nonpublic inside information to trade in its stock, a principal investigator’s
financial interest becomes aligned with the outcome of the study—he has an
incentive to lie about or conceal patients’ results in order to influence the
study’s outcome, and ultimately his wallet. When a sponsor such as Regado
files an application for the approval of a particular drug, however, it makes
representations to the FDA, which in turn the FDA necessarily relies on,
about the integrity of the study performed by principal investigators.
Allowing principal investigators to trade on the nonpublic inside
information entrusted to them in the course of a study would thus
undermine that study’s integrity, the very reason why principal
investigators are vested with independence from the drug’s corporate
sponsor.
25
Indeed, as indicated above, the contract creating the relationship
between Kosinski and Regado—the CSRA—contained two significant
provisions. First, his contract required that the Study information conveyed
to Kosinski be held in “strict confidence,” which provided Regado with the
“trust and confidence” it required to disclose to him critical inside
information. Falcone, 257 F.3d at 234. Regado would not have provided this
information had Kosinski not agreed to keep the information confidential.
This court has held that such an “explicit acceptance of a duty of
confidentiality” is itself sufficient to establish the necessary fiduciary duty of
trust and confidence. Id.; see also Chestman, 947 F.2d at 571. Second, the
contract required Kosinski to inform Regado if the value of his shares in that
company exceeded $50,000. This served to ensure that Kosinski’s
assessment of the drug’s safety and efficacy was independent of the
company’s interest in obtaining FDA approval. Had Kosinski not agreed to
make this disclosure, he could not have been hired.
In sum, we conclude that there was sufficient evidence that Kosinski’s
role as a principal investigator clothed him with fiduciary status such that
26
he could not trade on Regado’s nonpublic inside information absent
disclosure. Chestman, 947 F.2d at 565. That conclusion is only reinforced by
Kosinski’s agreement to disclose to Regado when the value of his shares
exceeded $50,000, which he failed to do. The evidence established that
Kosinki’s unrevealed investment in Regado created a conflict between his
financial interest and his duty to objectively gather and report information
about REG1’s safety and effectiveness. In these circumstances, his secret
trading in Regado stock based on the nonpublic inside information that was
disclosed to him because of his relationship of trust and confidence
constituted a fraud on Regado. 5
C. Kosinski’s Arguments To The Contrary Are Without Merit
In urging otherwise, Kosinski first argues that he did not violate
federal securities law because he was simply bound by the provisions of his
agreement with Regado not to disclose any confidential information that he
5 Because we hold that the evidence was otherwise sufficient to convict
Kosinski, we do not address the application of Rule 10b5–2, upon which the
U.S. Attorney relies and which provides that a “duty of trust or confidence”
exists “[w]henever a person agrees to maintain information in confidence.”
17 C.F.R. § 240.10b5–2(b)(1).
27
acquired as a result of his involvement as an investigator in the Study, and
he did not divulge any such information in breach of the CSRA. But as we
have demonstrated, the agreement was significantly broader than Kosinski
asserts. The CSRA expressly required that Kosinski complete a financial
disclosure form and promptly disclose if the value of his shares of Regado
stock exceeded $50,000. Kosinski breached this duty to disclose, which was
clearly designed to inform Regado if Kosinski was no longer the
independent assessor for whose services Regado contracted. Kosinski’s
breach of this condition constituted a breach of the confidentiality agreement
of which it was an integral part.
Nor does it help Kosinski’s cause that the operative CSRA contained a
clause providing that Kosinski would “maintain in strict confidence”
Regado’s confidential information, while the preceding CDA contained a
comparable prohibition on disclosure as well as use of confidential
information. The Supreme Court has held that a temporary insider’s duty
not to trade on insider information can arise from an expectation that “the
outsider [will] keep the disclosed nonpublic information confidential” and
28
that his relationship with the corporation at a minimum “must imply such a
duty.” Dirks, 463 U.S. at 655 n.14. It follows that the absence of an express
prohibition on trading is not fatal here. In any event, we decline to infer
Regado’s intent to permit Kosinski to trade on nonpublic Study information
based on the CSRA’s omission of a clause contained in the prior CDA, a
conclusion only reinforced by the CSRA’s merger clause, which stated
expressly that the CSRA embodied the entire understanding of the parties
and thus rendered the CDA irrelevant. 6 The same is true of other agreements
that Regado may have had with third parties. See Applied Energetics, Inc. v.
NewOak Capital Mkts., LLC, 645 F.3d 522, 525–26 (2d Cir. 2011).
Similarly, we reject the notion that Kosinski could not have been a
fiduciary of Regado because the CSRA labeled him an independent
contractor. The Supreme Court has held that independent contractors such
as outside attorneys, accountants, underwriters, and consultants can serve
6The CSRA’s merger clause provided that: “This Agreement, including
Exhibits A and B, embodies the entire understanding between [the LLC],
[St. Vincent’s Medical Center], [Kosinski] and [Regado] for [] the subject
matter herein, and any prior or contemporaneous negotiations, either oral
or written, are hereby superseded.” App’x at 243.
29
as fiduciaries sufficient to establish their insider trading liability. See Dirks,
463 U.S. at 655 n.14.
Moreover, we do not afford the contractual term “independent
contractor” controlling effect where such a term, even in a private contract,
implicates significant public policies. See Brock v. Superior Care, Inc., 840 F.2d
1054, 1059 (2d Cir. 1988) (stating that a “self-serving label of [employees] as
independent contractors is not controlling”). Here, in light of the significant
public policy considerations “animating” the Exchange Act, O’Hagan, 521
U.S. at 658, we would decline to deem controlling language used by private
parties that would permit unlawful insider trading. Nor do we find
controlling cases between private parties based on a cause of action for
breach of fiduciary duty, see, e.g., Spinelli v. Nat’l Football League, 903 F.3d 185,
207–08 (2d Cir. 2018). Those cases simply do not implicate any
considerations of federal public policy, much less considerations as strong
30
as those underlying the prohibition against insider trading in the Exchange
Act, as articulated by Justice Ginsburg in O’Hagan. 7
7 We have made a similar point in the context of the Securities Act of 1933.
In Kaiser-Frazer Corp. v. Otis & Co., 195 F.2d 838 (2d Cir. 1952), we declined
to enforce a contract for sale of securities by Kaiser-Frazer to one of its
underwriters, Otis & Co., which claimed that Kaiser-Frazer misleadingly
inflated its profits in December 1947. Id. at 843–44. The record indicated,
however, that representatives of Otis were informed of the actual December
earnings and took part in the preparation of the registration statement and
prospectus. Id. at 843.
We nevertheless declined to apply the ordinary “rules of estoppel or
waiver,” because whatever those rules “may be in the case of an ordinary
contract of sale, nevertheless it is clear that a contract which violates the laws
of the United States and contravenes the public policy as expressed in those
laws is unenforceable.” Id. Writing for the panel, Judge Augustus Hand
explained that “regardless of the equities as between the parties, [] the very
meaning of public policy is the interest of other than the parties and that
interest is not to be at the mercy of the [parties] alone.” Id. at 844 (internal
quotation omitted). “While it may be argued that the enforcement of the
underwriting contract according to its terms would result only in the sale of
the stock to Otis and that such a sale would not violate the [Securities Act of
1933], we are satisfied that the contract was so closely related to the
performance of acts forbidden by law as to be itself illegal.” Id. Similarly
here, Kosinski’s actions substantially undermined the policies underlying
the Exchange Act relating to insider trading. Accordingly, whether or not
the language of the contract would have provided a defense to a private
breach of contract action by Regado, Kosinski’s designation as an
independent contractor cannot control the legality of his trades.
31
We likewise reject the argument that Kosinski could not have been a
fiduciary because he dealt with Regado at “arm’s-length,” a term that is often
used but rarely defined. We have held that while “[an arm’s length]
relationship is not by itself a fiduciary relationship,” the “addition of a
relationship of confidence [or] trust,” as was present here, “may indicate that
such a relationship exists.” In re Mid-Island Hosp., Inc., 276 F.3d 123, 130 (2d
Cir. 2002) (internal quotation omitted); see also, e.g., Muller-Paisner v. TIAA,
289 F. App’x 461, 466 (2d Cir. 2008) (summary order) (relying on In re Mid-
Island Hosp. to explain that “a fiduciary duty may arise in the context of
[such] a commercial transaction upon a requisite showing of trust and
confidence,” as was present here).
We come now to Kosinski’s argument that the evidence was
insufficient to conclude that he was a fiduciary of Regado on the basis of
language in Chestman highlighting three particular factors: that “[a]t the
heart of the fiduciary relationship lies reliance, and de facto control and
dominance.” 947 F.2d at 568. “Stated differently, a fiduciary relation exists
when confidence is reposed on one side and there is resulting superiority
32
and influence on the other.” AG Cap. Funding Partners v. State St. Bank & Tr.
Co., 11 N.Y.3d 146, 158 (2008) (quoting Ne. Gen. Corp. v. Wellington Adv., 82
N.Y.2d 158, 173 (1993) (Hancock, J., dissenting)); see also Fisher v. Bishop, 108
N.Y. 25, 28 (1888) (fiduciary relationship exists when “there has been a
confidence reposed which invests the person trusted with an advantage in
treating with the person so confiding”).
The evidence was sufficient here to find that Kosinski’s relationship
with Regado satisfied this standard. As we observed earlier, Regado
entrusted Kosinski with the administration of a newly-created drug to
human beings because of his experience as a principal investigator who
could give Regado access to his patients. His patients’ continued
participation in the Study presumably was dependent on Kosinski’s
relationship with them. Thus, while control of REG1 was Regado’s at the
outset, it ceded that control, at least for purposes of conducting the Study, to
principal investigators, such as Kosinski, relying on their superior medical
skill and expertise, and affording them dominance in assessing how the drug
actually performed for patients. Regado relied upon Kosinski’s professional
33
independence and integrity to accurately report back his results about REG1
from the Study, without which information Regado’s clinical trial could not
be completed. Kosinski’s relationship with Regado was therefore
“characterized by a unique degree of trust and confidence between the
parties, one of whom has superior knowledge, skill or expertise,” SEC v.
DiBella, 587 F.3d 553, 564 (2d Cir. 2009).
We have assumed for purpose of addressing Kosinski’s argument that
these three factors described in Chestman reflect the only appropriate
standard from which the jury could find the requisite fiduciary relationship. 8
They do not. We provide the following detailed analysis of Chestman—more
than would otherwise be necessary—because of the extensive reliance on
these factors in Kosinski’s briefing.
8 We frame the issue in terms of the sufficiency of the evidence because
Kosinski never sought a jury instruction defining a fiduciary relationship to
require reliance, de facto control and dominance. Nor does he raise on
appeal the adequacy of the charge in this respect, which did not include
discussion of these factors. Thus, he is forced to argue that the evidence was
insufficient as a matter of law.
34
Chestman’s reference to “reliance, and de facto control and dominance”
was a direct quotation from United States v. Margiotta, 688 F.2d 108 (2d Cir.
1982), which concerned the federal mail fraud statute and relied on New
York law. It is helpful to place that language in the context of the analysis
prompting its adoption. As framed by Judge Kaufman, writing for the
majority, Margiotta raised “the novel issue whether an individual who
occupies no official public office but nonetheless participates substantially
in the operation of government owes a fiduciary duty to the general citizenry
not to deprive it of certain intangible political rights that may lay the basis
for a mail fraud prosecution.” 688 F.2d at 121.
Judge Kaufman observed that “[t]he drawing of standards in this area
is a most difficult enterprise,” because “[o]n the one hand, it is essential to
avoid the Scylla of a rule which permits a finding of fiduciary duty on the
basis of mere influence or minimum participation in the processes of
government.” Id. at 122. 9 Such a rule would “threaten to criminalize a wide
9Some years after Margiotta upheld an honest-services theory of mail fraud,
the Supreme Court construed the federal mail fraud statute, 18 U.S.C. § 1341,
35
range of conduct, from lobbying to political party activities, as to which the
public has no right to disinterested service.” Id. On the other hand, “the
harm to the public arising from the sale of public office and other fraudulent
schemes leads us to steer a course away from the Charybdis of a rule which
bars on all occasions, as a matter of law, a holding that one who does not
hold public office owes a fiduciary duty to the general citizenry even if he in
fact is conducting the business of government.” Id.
The Margiotta Court observed that while “there is no precise litmus
paper test,” it found two measures of fiduciary status helpful in that context:
(1) a reliance test, under which one may be a fiduciary when others rely upon
him because of a special relationship in the government, and (2) a de facto
control test, under which a person who in fact makes governmental
decisions may be held to be a governmental fiduciary. Id.
These tests recognize the important distinction between party
business and government affairs, permitting a party official to
act in accordance with partisan preferences or even whim, up to
to reach only schemes to deprive victims of money or property. See United
States v. McNally, 483 U.S. 350 (1987). Following McNally, Congress enacted
18 U.S.C. § 1346 to include “the intangible right of honest services” within
the ambit of the federal fraud statutes.
36
the point at which he dominates government. Accordingly, the
reliance and de facto control tests carve out a safe harbor for the
party leader who merely exercises a veto power over decisions
affecting his constituency.
Id.
In turn, although Chestman adopted Margiotta’s measure of a fiduciary
duty for a political leader, such a measure is not necessarily appropriate for
other cases in other contexts. Significantly, as Judge Robert Ward—who was
sitting by designation on the Margiotta panel and who cast the deciding vote
in this aspect of the case—later wrote, “the analysis in Margiotta was directed
at the precise parameters of the facts involved in that case.” United States v.
Reed, 601 F. Supp. 685, 708 n.35 (S.D.N.Y. 1985). Judge Ward did “not read
Margiotta or any other decision of the Second Circuit as establishing a
controlling definition of the confidential relationship concept to be applied
in a variety of contexts, and particularly in the instant case [before him].” Id.
We agree.
Consistent with Judge Ward’s analysis, and without reference to the
Margiotta factors, this court subsequently held that under New York law, a
fiduciary relationship arises “when one [person] is under a duty to act for or
37
to give advice for the benefit of another upon matters within the scope of the
relation.” Flickinger v. Harold C. Brown & Co., 947 F.2d 595, 599 (2d Cir. 1991)
(internal quotation omitted). 10 And Chestman itself set out two other tests,
immediately after quoting from Margiotta, one of which is the traditional test
that one acts as a fiduciary when
the business which he transacts, or the money or property which
he handles, is not his own or for his own benefit, but for the
benefit of another person, as to whom he stands in a relation
implying and necessitating great confidence and trust on the one
part and a high degree of good faith on the other part.
10 Indeed, three decades later, the New York Court of Appeals defined a
fiduciary relationship as “a duty to act for or to give advice for the benefit of
another upon matters within the scope of the relation.” Oddo Asset Mgmt. v.
Barclays Bank PLC, 19 N.Y.3d 584, 592–93 (2012). Likewise, two years ago,
this court again restated the definition of a fiduciary set out in Flickinger and
quoted the following summation of such a duty under New York law:
“Broadly stated, a fiduciary relationship is one founded upon trust or
confidence reposed by one person in the integrity and fidelity of another. It
is said that the relationship exists in all cases in which influence has been
acquired and abused, in which confidence has been reposed and betrayed.”
Galvstar Holdings, LLC v. Harvard Steel Sales, LLC, 722 F. App’x 12, 15 (2d Cir.
2018) (quoting Penato v. George, 52 A.D.2d 939, 942 (2d Dep’t 1976)). None of
these cases described the Margiotta factors as a prerequisite to fiduciary or
fiduciary-like status, although that standard is occasionally cited in other
cases. See, e.g., AG Cap. Funding Partners, 11 N.Y.3d at 158.
38
947 F.2d at 568–69 (quoting Black’s Law Dictionary (5th ed. 1979)). This
traditional test aptly describes the relationship between Kosinski and
Regado.
Moreover, Chestman indicated that the result in that case, which
involved the transmittal of inside information in the context of a family
relationship, might have been different had the transmittal been in breach of
an “express agreement of confidentiality.” Id. at 571. Significantly, the
Chestman court in 1991 expressed approval for Judge Ward’s 1985 opinion in
Reed that “the repeated disclosure of business secrets between family
members may substitute for a factual finding of dependence and influence
and thereby sustain a finding of the functional equivalent of a fiduciary
relationship.” Id. at 569 (emphasis added).
Perhaps most significant is then-Judge Sotomayor’s opinion in Falcone,
which holds that a fiduciary relationship can arise so long as “the party in
whom confidence is reposed has entered into a relationship in which he or
she acts to serve the interests of the party entrusting him or her with such
information,” 257 F.3d at 234–35, without referencing a showing of “de facto
39
control and dominance,” Chestman, 947 F.2d at 568. Indeed, and perhaps for
these reasons, Kosinski concedes that he “has never maintained” that only
contracts bearing what he calls “‘the hallmarks of a traditional fiduciary
relationship’ can create the necessary duty” sufficient to sustain insider
trading liability. Reply Br. at 7 n.2.
In sum, Chestman’s three-factor standard of “reliance, and de facto
control and dominance” does not state the exclusive test of fiduciary status,
nor the proof necessary to sustain a conviction under the misappropriation
theory. The cases cited by Kosinski that employ the standard of “reliance,
and de facto control and dominance,” 11 Reply Br. at 4, did so (in the words
of the Supreme Court) in the context of “other federal fraud statutes” and do
not advance his cause here, in the context of insider trading. Salman, 137 S.
Ct. at 428. Indeed, in Salman in 2016, the Supreme Court merely “assum[ed]”
that such “cases are relevant to our construction of §10(b) (a proposition the
11See United States v. Halloran, 821 F.3d 321, 338–39 (2d Cir. 2016); United
States v. Skelly, 442 F.3d 94, 99 (2d Cir. 2006); United States v. Szur, 289 F.3d
200, 210 (2d Cir. 2002); United States v. Brennan, 183 F.3d 139, 150 (2d Cir.
1999). Of these cases, only Halloran turned on the application of this
standard.
40
Government forcefully disputes)[.]” Id. In light of our discussion of the
limitations of the history and application of Chestman’s three-factor
standard, we see no reason to extend it here merely because it has been
repeated in other contexts. Thus, while the evidence here was indeed
sufficient to find that Kosinski owed Regado a fiduciary duty based on
reliance, control, and dominance, that conclusion does not signal that only
such factors can establish a fiduciary duty for purposes of determining
insider-trading liability.
D. The Jury Instruction On Breach Of Duty
Kosinski contends that the district court erred in instructing the jury
that “a person has a requisite duty of trust and confidence whenever a
person agrees to maintain information in confidence.” Gov’t App’x at 1151.
He maintains that this instruction “effectively directed a verdict in favor of
the government” because it was undisputed at trial that Kosinski had
agreed, per the CSRA, to keep Regado’s information confidential. See
Appellant Br. at 40.
41
“We consider a jury instruction erroneous ‘if it misleads the jury as to
the correct legal standard or does not adequately inform the jury on the
law.’” United States v. Silver, 864 F.3d 102, 118 (2d Cir. 2017) (quoting United
States v. Finazzo, 850 F.3d 94, 105 (2d Cir. 2017)). Even where an instruction
is erroneous, we will affirm if it is “clear beyond a reasonable doubt that a
rational jury would have found the defendant guilty absent the error.”
United States v. Sheehan, 838 F.3d 109, 121 (2d Cir. 2016) (internal quotation
marks and citation omitted).
We need not decide here whether the district court’s instruction to the
jury that “a person has a requisite duty of trust and confidence whenever a
person agrees to maintain information in confidence” was erroneous.
Assuming arguendo that it was, any error in the instruction was harmless. As
discussed supra, the trial evidence overwhelmingly established that Kosinski
had a fiduciary or fiduciary-like duty to Regado, and we are convinced “that
a rational jury would have found [Kosinski] guilty absent the error.” Sheehan,
838 F.3d at 121 (internal quotation marks omitted).
42
II. Willfulness
Kosinski argues that the district court gave an improper jury
instruction on the willfulness element of his alleged breach of his fiduciary
duty, and that the evidence was insufficient to prove willfulness under the
proper standard.
Section 32(a) of the Securities Exchange Act provides that:
Any person who willfully violates any provision of this
chapter . . . , or any rule or regulation thereunder the violation
of which is made unlawful or the observance of which is
required under the terms of this chapter . . . shall upon
conviction be fined not more than $5,000,000 or imprisoned
not more than 20 years, or both . . . ; but no person shall be
subject to imprisonment under this section for the violation of
any rule or regulation if he proves that he had no knowledge
of such rule or regulation.
15 U.S.C. § 78ff(a) (emphasis added). Thus, Kosinski must have “willfully
violate[d]” § 10b and Rule 10b–5 to be held criminally liable for such
violations.
43
A. The Jury Instructions
The trial judge gave the jury the following relevant instruction on what
the judge called “the second element [of the offense]: knowledge, intent, and
willfulness”:
The second element that the Government must prove beyond a
reasonable doubt is that the defendant participated in the
scheme to defraud knowingly, willingly, and with the intent to
defraud. To act knowingly means to act voluntarily and
deliberately rather than mistakenly or inadvertently. To act
willfully means to act knowingly and purposefully with the
intent to do something that the law forbids, that is, with bad
purpose either to disobey or to disregard the law. . . . It is not
required that the Government show that Dr. Kosinski, in
addition to knowing what he was doing and deliberately doing
it, also knew that he was violating some particular statute. But
the defendant must have acted with knowledge and intent to
carry out the insider trading scheme.
GA 1154–55.
Kosinski argues that the above instruction failed to adequately convey
that Kosinski’s guilt required that he knew that his conduct was unlawful
under the securities laws. The government responds that the instruction
accurately explained the willfulness requirement, which does not require
any knowledge that the defendant knew he was violating the securities laws.
44
At the outset, we observe that Kosinski did not request an instruction
that he must have known he was violating the securities laws, an omission
that would normally limit our review to plain error. See Fed. R. Crim. P.
52(b). Here, however, Kosinski’s conduct may have amounted to waiver,
and not merely forfeiture, which would preclude even plain error review. 12
Contrary to Kosinski’s argument on appeal, he appears to have
endorsed the substance of the given charge. We have explained that “if a
party invited the charge . . . she has waived any right to appellate review of
the charge.” United States v. Giovanelli, 464 F.3d 346, 351 (2d Cir. 2006).
Kosinski’s own request to charge defined “willful conduct” as a “voluntary,
intentional violation of a known legal duty and is synonymous with conduct
12
It is well established that waiver is different from forfeiture. See United
States v. Olano, 507 U.S. 725, 733 (1993) (“Whereas forfeiture is the failure to
make the timely assertion of a right, waiver is the intentional relinquishment
or abandonment of a known right.”). We have explained that “[i]f a party's
failure to take an evidentiary exception is simply a matter of oversight, then
such oversight qualifies as a correctable ‘forfeiture’ for the purposes of plain
error analysis.” United States v. Yu-Leung, 51 F.3d 1116, 1122 (2d Cir. 1995).
“If, however, the party consciously refrains from objecting as a tactical
matter, then that action constitutes a true ‘waiver,’ which will negate even
plain error review.” Id.
45
that is done with bad purpose or evil motive either to disobey or to disregard
the law.” Gov’t App’x at 1276. In this respect, it was identical to the district
court’s charge. And the defense repeated this position at the charge
conference: “Your Honor, our position really just is that the instruction needs
to be clear that the willfulness requires a showing that the defendant had
knowledge that his conduct was unlawful.” Id. at 1226. “Such endorsement
might well be deemed a true waiver, negating even plain error review.”
United States v. Hertular, 562 F.3d 433, 444 (2d Cir. 2009).
Even assuming arguendo that Kosinski’s conduct at trial constituted
correctable forfeiture, however, Kosinski still cannot demonstrate error, and
certainly not plain error. The Supreme Court has held that, “[a]s a general
matter, when used in the criminal context, a ‘willful’ act is one undertaken
with a ‘bad purpose.’ In other words, in order to establish a ‘willful’
violation of a statute, ‘the Government must prove that the defendant acted
with knowledge that his conduct was unlawful.’” Bryan v. United States, 524
U.S. 184, 191–92 (1998) (quoting Ratzlaf v. United States, 510 U.S. 135, 137
(1994)). Moreover, in Bryan, the Court approved a willfulness charge
46
instructing that so long as a defendant “act[s] with the intent to do something
that the law forbids,” he need not be aware “of the specific law or rule that
his conduct may be violating.” Id. at 190 (quoting jury instructions).
While Bryan made these pronouncements in the context of a federal
firearms conviction, this court has recognized that its definition of
willfulness is generally applicable. As a general matter, “a person who acts
willfully need not be aware of the specific law that his conduct may be
violating. Rather, ‘knowledge that the conduct is unlawful is all that is
required.’” United States v. Henry, 888 F.3d 589, 599 (2d Cir. 2018) (quoting
Bryan, 524 U.S. at 196). When a statute limits criminal liability to “willful”
violations, it does not necessarily “carve out an exception to the traditional
rule that ignorance of the law is no excuse.” Bryan, 524 U.S. at 195–96.
A heightened standard of willfulness, demanding “[k]nowledge of the
specific law that one is violating[,] has been required only where a ‘highly
technical statute[]’—such as a provision of the Internal Revenue Code—
prohibits ‘apparently innocent conduct.’” Henry, 888 F.3d at 599 (quoting
47
Bryan, 524 U.S. at 196). 13 The insider trading activities that Section 10(b) and
Rule 10b–5 prohibit, by contrast, cannot be described as “apparently
innocent.” Henry, 888 F.3d at 599; see United States v. O’Hagan, 139 F.3d 641,
647 (8th Cir. 1998) (recognizing that § 10(b) violations “necessarily involve[]
fraudulent conduct and breaches of duty by the defendant,” and “do not
involve conduct that is often innocently undertaken”).
United States v. Cassese, 428 F.3d 92 (2d Cir. 2005), relied on by Kosinski,
is not to the contrary. While the panel majority there defined willfulness as
“‘a realization on the defendant’s part that he was doing a wrongful act’
under the securities laws,” see id. at 98 (emphasis added) (quoting United States
v. Peltz, 433 F.3d 48, 55 (2d Cir. 1970)), this court has since clarified that the
highlighted language did not depart from precedent to require a securities
13See, e.g., Cheek v. United States, 498 U.S. 192, 205 (1991) (stating that, in some
tax cases, willfulness requires defendant’s knowledge of specific legal duty
violated because “uncertainty” about “our complex tax system . . . often
arises even among taxpayers who earnestly wish to follow the law”); see also
Ratzlaf v. United States, 510 U.S. 135, 136, 144 (1994) (stating same as to
statutory prohibition against structuring of cash transactions to avoid
triggering financial institutions’ legal reporting requirement, conduct that
“is not inevitably nefarious”).
48
defendant’s awareness of more than the general unlawfulness of his
conduct. United States v. Kaiser, 609 F.3d 556, 569 (2d Cir. 2010). 14
All in all, Kosinski’s challenge fails because he cannot demonstrate that
the purported error is plain, much less that he sustained any prejudice or
that the fairness, integrity, or public reputation of his judicial proceedings
was called into question. See Olano, 507 U.S. at 732–37.
B. Legal Sufficiency
Although we review a defendant’s challenge to the sufficiency of the
evidence de novo, “we will uphold the judgment[] of conviction if ‘any
rational trier of fact could have found the essential elements of the crime
14 As Kaiser observed, the Cassese majority “did not reach the question of
whether willfulness required only awareness of general unlawfulness or
whether it required that the defendant knowingly commit the specific
violation charged,” finding the evidence insufficient as a matter of law under
either standard. 609 F.3d at 569; see Cassese, 428 F.3d at 95. Only Judge Raggi,
in dissent, analyzed the appropriate standard, and concluded—correctly—
that the “only proof of knowledge required to establish a willful violation of
the Exchange Act is the defendant’s awareness of the general unlawfulness
of his conduct.” Cassese, 428 F.3d at 109. Thus, Cassese does not clearly
establish the willfulness standard urged by Kosinski, as necessary for the
first two prongs of plain error. But the point warrants no further discussion
because Kaiser makes plain that Kosinski cannot show any charging error.
49
beyond a reasonable doubt,’” Martoma, 894 F.3d at 72 (quoting Jackson, 443
U.S. at 319). “In evaluating a sufficiency challenge, we must view the
evidence in the light most favorable to the government, crediting every
inference that could have been drawn in the government’s favor, and . . .
uphold[ing] the judgment of conviction if any rational trier of fact could have
found the essential elements of the crime beyond a reasonable doubt.” Id.
(internal quotation marks, brackets, and emphasis omitted).
Viewed in the light most favorable to the government, the trial
evidence was sufficient to allow a rational jury to conclude that Kosinski’s
insider trading was willful under the instruction given by the district judge,
which was consistent with Kosinski’s own request and the law. The jury
heard evidence that Kosinski was a “sophisticated investor,” particularly “in
the pharmaceutical sector” who regularly dealt in options. Gov’t App’x at
565, 1007. Indeed, while working as principal investigator for Regado, he
not only traded to avoid a loss of $160,000, but also, after learning that a
patient had died, he traded to profit from that inside information by
purchasing put options. The government presented evidence that Kosinski
50
knew that he was trading on nonpublic inside information, based on his
receipt of the information at issue pursuant to a confidentiality agreement as
well as his subsequent admissions that he did not feel good about the trades
at the time he made them (that they were the product of “greed and
stupidity”). Indeed, the admissions by themselves might suffice to show he
knew his conduct violated the law.
There is more evidence indicating willfulness. Kosinski was only able
to engage in the charged conduct because of lies and deceit. First, in breach
of his contract with Regado, he failed to advise Regado that he had
accumulated far more than the minimal stock holdings in that company that
he was permitted to own without disclosure. And he failed to do so even
though he had been told that such disclosure was crucial to the FDA. Nor
did he disclose his use of Regado’s inside information to trade in the manner
in which he did. Moreover, he lied to St. Vincent’s Hospital, which was also
a party to the CSRA with Regado when, in seeking its permission to conduct
the Study there, he falsely stated that he did not own any Regado shares in
response to a specific inquiry.
51
Taken together, this evidence of Kosinski’s deceptive activity was
sufficient for the jury to find that Kosinski knew his actions were unlawful
under the charge given by the district court.
III. The District Court’s Evidentiary Rulings Did Not Abuse Its
Discretion
Kosinski sought to elicit testimony from FBI agent McGoey on cross
examination that in the same August 2016 five-minute telephone
conversation in which Kosinski stated that he “didn’t feel good about
making those trades when he had made them” and described his conduct as
motivated by “greed and stupidity,” see supra at 14, he also made two other
statements: (i) before McGoey informed Kosinski that he had been indicted,
Kosinski told him that he had not yet retained counsel, and (ii) after McGoey
informed Kosinski that he had been indicted, Kosinski said “I can’t believe
this is happening.” Over Kosinski’s objections, the district court excluded
those statements as inadmissible hearsay. Kosinski now challenges those
rulings, arguing that both statements were admissible under the rule of
completeness and as excited utterances.
52
“We review a district court's evidentiary rulings under a deferential
abuse of discretion standard, and we will disturb an evidentiary ruling only
where the decision to admit or exclude evidence was ‘manifestly
erroneous.’” United States v. Litvak, 889 F.3d 56, 67 (2d Cir. 2018) (quoting
United States v. McGinn, 787 F.3d 116, 127 (2d Cir. 2015)).
A. Kosinski’s Statement That He Had Not Retained Counsel
We reject Kosinski’s argument that his statement that he had not
retained counsel was an excited utterance. First, Kosinski concedes he made
that statement before Agent McGoey informed him of the indictment.
Second, Kosinski’s resort to the argument that “the phone call from the FBI
was itself a startling event” under Federal Rule of Evidence 803(2) is without
merit, particularly since he had already spoken with the FBI approximately
two months earlier. Nor did the district court abuse its discretion by
declining to admit this statement under the rule of completeness. See United
States v. Johnson, 507 F.3d 793, 796 & n.2 (2d Cir. 2007) (no error where court
could reasonably conclude that the statement was not “relevant to the
admitted passages”); see FED. R. EVID. 106.
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B. Kosinski’s Statement That He “Can’t Believe This Is
Happening”
We likewise conclude that the district court did not abuse its discretion
by excluding Kosinski’s second statement to Agent McGoey—that “I can’t
believe this is happening”—when McGoey told him he had been indicted.
While learning that one has been indicted could perhaps under certain
circumstances be a startling event, those circumstances are not present here.
Kosinski had spoken with Agent McGoey for close to an hour and a half
about two months prior about “Dr. Kosinski’s trading in Regado,” which
Kosinski knew was based on nonpublic, inside information. Gov’t App’x at
421–22. The parties, however, stipulated not to elicit any testimony from
that first conversation in order to avoid a “hearsay fight” over the
admissibility of certain of Kosinski’s statements. Id. at 423.
Because of that stipulation, the district court did not have sufficient
information—and neither do we—to determine whether Kosinski’s
indictment was startling despite what he could have gleaned from the earlier
conversation: namely, that he was possibly a subject or target of the FBI’s
investigation for insider trading. Under these circumstances, we cannot say
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that the district court’s decision to exclude this statement was “manifestly
erroneous.” Litvak, 889 F.3d at 67. Nor was the statement necessary under
the rule of completeness to place into context Kosinski’s comments
introduced by the government, which did not relate to this statement by
Kosinski.
CONCLUSION
The judgment of conviction is AFFIRMED.
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