Criminal – False statement – Insider trading

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Where a jury acquitted a defendant of insider trading but convicted him of making a false statement to the FBI, the conviction should be affirmed despite the defendant’s argument that (1) the jury might have convicted him based on uncharged conduct and (2) the evidence was insufficient to prove the materiality of the false statement.

“Charlie Jinan Chen was charged in a four-count indictment with three counts of insider trading, in violation of 15 U.S.C. sectionsection78j(b) and 78ff(a) (counts 1-3), and with one count of making a materially false statement to the Federal Bureau of Investigation (FBI), in violation of 18 U.S.C. section1001(a)(2) (count 4). The government alleged Mr. Chen made the false statement during an interview the FBI conducted of him while investigating insider trading. At trial, he was acquitted of all three insider trading counts but convicted of making a false statement. He was sentenced to two years of probation plus a $4,000 fine.

“The crux of the appeal involves the content of the allegedly false statement and related claims of prosecutorial misconduct and judicial mishandling of count 4. Also material to the appeal is the content of a second statement which, while alleged by the government to have been false, was not charged. The two statements — one referred to as the Recall Allegation and the other as the Friends Allegation — are elucidated below. …

“The insider trading charges pertained to Mr. Chen’s stock trading in Vistaprint, an international printing company with offices in Lexington, Massachusetts. The government contended that just prior to the release of eight consecutive quarterly earnings statements, Mr. Chen exercised options to purchase Vistaprint stock. In each of these quarters, Mr. Chen correctly predicted the rise in share prices that would follow the announcements. After the bump in the stock value, he sold shares, realizing a profit of more than $800,000. The government alleged that this pattern of purchasing and selling Vistaprint stock was facilitated by insider information obtained from a Vistaprint executive, Zhen (Jenny) Ye, or her husband, Kun (Kevin) Xu, or both. According to the prosecution, the Ye-Xu family and the Chen family were close friends, living near each other, sending their children to the same language school, and socializing and vacationing together.

“During the FBI interview, Mr. Chen made two statements that are relevant here. He told the FBI that he could not recall options trading in Vistaprint. It was that answer, which we refer to as the ‘Recall Allegation’, that count 4 of the indictment alleged was untrue. Mr. Chen made a second statement to the FBI which the government also challenged as false, albeit not in a formal charge. In the FBI interview, Mr. Chen denied that he and the executive’s husband, Kun or Kevin Xu, were ‘close friends.’ He said they were mere acquaintances who did not speak often and had never spoken about Vistaprint. He claimed not to know what Jenny did for a living. The accusation that this denial was untrue is referred to here as the ‘Friends Allegation.’ The untruth of the Friends Allegation was highly relevant to the prosecution. The relationship between Mr. Chen and the Xu couple would make more plausible his having received an insider ‘tip’ from one or both of them that could be used in insider trading. Further, it would also make more probable that his trading in Vistaprint options would be memorable.

“This appeal sends our attention in two directions. First, in a series of arguments all complaining in various ways of the same thing, Mr. Chen contends that even though only the Recall Allegation was charged as materially false, the jury might have convicted him instead based on the uncharged Friends Allegation. Second, in an argument not raised during trial but preserved in his motion for new trial, Mr. Chen contends that the evidence was insufficient to prove the materiality of the false statement, an element of count 4. …

“In this case, except for the materiality argument raised at his motion for new trial, all of Mr. Chen’s arguments on appeal were either waived or forfeited. …

“At its heart, Mr. Chen’s argument is that multiple circumstances may have caused the jury to convict him of the Friends Allegation instead of the Recall Allegation, essentially causing a mismatch — or variance — between the indictment and the proof. He contends that both the trial judge and the prosecutor furthered this alleged error. As a result, he argues, he did not receive adequate notice that the charge he had to defend against concerned the Friends Allegation. At trial, however, he raised neither the argument of variance nor of a Sixth Amendment ‘notice’ violation, so plain error review is required. …

“As to his Sixth Amendment claim, Mr. Chen received adequate notice of the conduct charged as criminal and so there was no error, plain or otherwise. …

“Mr. Chen suggests that he has established prejudice because there was ‘evidentiary spillover’ that could have led the jury to convict him of count 4 based on the Friends Allegation, even if it believed that he was telling the truth when he stated that he could not recall his options trading with Vistaprint. But we have only recognized such spillover prejudice in cases involving multiple conspiracies and/or multiple defendants, … ‘so that in cases with multiple defendants proof that one defendant was involved in one conspiracy does not lead the jury to believe that another defendant was involved in a separate conspiracy.’ … Mr. Chen points to no case in which we have applied this doctrine to find a prejudicial variance with respect to a false statement charge against a single defendant. In short, we see no plain error. …

“With respect to materiality, while Mr. Chen maintains the statement had to be one that in fact affected the investigation, we agree with the government’s assertion that it merely had to be of a type which would have a ‘natural tendency’ to influence an investigation in the ‘abstract.’ … Pretending to not recall the trades can be as material as admitting or denying having made them, as a jury could find that a feigned lack of memory was intended as a thinly veiled deception. …

“Finally, in his argument for a new trial, Mr. Chen included a claim that the indictment was ‘unclear.’ … He argued it is ambiguous as to whether it charges a false statement or merely a failure of memory. … The full language of the indictment leaves no doubt that Mr. Chen was charged with making a false statement about whether he remembered options trading, not with having a faulty memory. There was nothing ambiguous about it, no error, and certainly no plain error.

“Although Mr. Chen has made known to us his dissatisfaction with several events at his trial, he did not make it clear to the district judge. Indeed, he explicitly agreed to at least two of her decisions that he now claims as error and he failed to preserve all but one of the rest. Subject to both waiver and the difficult standard of plain error, he has failed to make his appellate case. Finding that Mr. Chen’s arguments lack merit, we affirm.”

United States v. Chen (Lawyers Weekly No. 01-147-21) (18 pages) (McElroy, J., of the District of Rhode Island, sitting by designation) Appealed from a judgment entered by Casper, J., in the U.S. District Court for the District of Massachusetts. Valerie S. Carter, with whom Dennis C. Carter and Carter & Doyle were on brief, for the defendant-appellant; Donald C. Lockhart, with whom Andrew E. Lelling was on brief, for the United States (Docket No. 19-1962) (May 17, 2021).

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