Sec. & Exch. Comm'n v. Sabrdaran

• Decision Date: 15 May 2017
• Docket Number: Case No. 14-cv-04825-JSC.
• Citation: 252 F.Supp.3d 866
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Sasan SABRDARAN, et al., Defendants.
• Court: U.S. District Court — Northern District of California

252 F.Supp.3d 866

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.Sasan SABRDARAN, et al., Defendants.

Case No. 14-cv-04825-JSC.

United States District Court, N.D. California.

Signed May 15, 2017

James E. Smith, Kenneth W. Donnelly, Scott W. Friestad, Securities and Exchange Commission, Washington, DC, for Plaintiff.

Dara Tabesh, EcoTech Law Group, P.C., Kimberly A. Almazan, Mark Philip Fickes, Therese Yvonne Cannata, Aaron Robert Field, Cannata O'Toole Fickes & Almazan LLP, San Francisco, CA, Christopher Charles Cooke, Patrick Thomas Murphy, Murphy Cooke Kobrick LLP, San Mateo, CA, for Defendants.

ORDER RE POST–TRIAL AND REMEDY MOTIONS

Re: Dkt. Nos. 170, 175

JACQUELINE SCOTT CORLEY, United States Magistrate Judge

Plaintiff Securities and Exchange Commission ("SEC") charge that Defendants Sasan Sabrdaran and Farhang Afsarpour engaged in insider trading in violation of the antifraud provisions of the Securities Exchange Act of 1934. Following a three-week trial, the jury returned a verdict in the SEC's favor. Now pending before the Court are Defendants' joint motion for judgment as a matter of law, or in the alternative, a new trial and the SEC's post-trial remedies motion. (Dkt. Nos. 170, 175.¹ ) Having had the benefit of oral argument on March 23, 2017, and having carefully considered the parties' written submissions, including their post-oral argument submissions, the Court DENIES Defendants' motion and GRANTS IN PART the SEC's remedies motion as set forth below.

BACKGROUND

The SEC alleged that Defendants engaged in insider trading when Dr. Sabrdaran, an employee of pharmaceutical company InterMune, Inc., tipped his long-time friend Afsarpour to material, non-public information about the progress through the European regulatory approval process of Esbriet, one of InterMune's products, and Afsarpour then acted on that tip by engaging in transactions in connection with InterMune securities. After receiving the nonpublic information about Esbriet's EU approval on the eve of the public announcement in December 2010, Afsarpour—who lives in the UK—placed certain online financial bets on the price changes in InterMune stock and options; specifically, he placed spread bets through a London-based company called IG Index and also bought InterMune stock via his stockbroker in New York. Afsarpour urged others to invest in InterMune as well, some of whom did.

Dr. Sabrdaran served on the InterMune team seeking marketing approval for Esbriet from the European Medicines Agency. Afsarpour is a close personal friend of Dr. Sabrdaran, and they communicated by phone, email, Facebook and other means frequently to discuss developments in their lives, philosophy, and other personal issues. They also tried to visit each other when one of them was present in the other's country. Afsarpour contended that he started placing spread bets on InterMune stock in November 2010 based on his own research about the company. He insisted that, based on publicly available information, he believed that InterMune would receive approval from the European Medicines Agency during the first quarter of 2011 to market and sell Esbriet in the European Union, and that this approval would be announced during the first quarter of 2011. He maintained that he did not receive any material nonpublic information from Dr. Sabrdaran or anyone else regarding InterMune.

Early in the case, the Court granted in part and denied in part Defendants' motions to dismiss and denied their motion to strike portions of the initial complaint. (Dkt. No. 36.) Defendants argued, among other things, that the transactions at issue involve spread bets, which are not "securities" for the purposes of a Section 10(b) and Rule 10(b)–5 violation. The Court concluded that the SEC, with minimal amendment, could plausibly allege that Afsarpour's spread bets were "in connection with" securities by alleging that IG Index had hedged his spread bets, which the SEC amended to do. After discovery, the Court denied the SEC's motion for partial summary judgment on the same issue, holding that to establish a securities violation under Section 10(b) and Rule 10(b)–5, the SEC need not necessarily prove that Afsarpour subjectively knew that his fraudulent activity was "in connection with" the purchase or sale of a security, but that a reasonable trier of fact might not find that Afsarpour's spread bets necessarily met that test.

Trial began on October 17, 2016. The parties agreed that Defendants shared a very close friendship; beyond that, the SEC and Defendants presented very different accounts. The SEC elicited testimony and proffered documentary evidence connecting the confidential and public announcements about Esbriet, communications between Defendants, and Afsarpour's trading activity. For example, there was testimony that Dr. Sabrdaran communicated with Afsarpour shortly after receiving a confidential, internal InterMune email stating that the European Medicines Agency had given the green light for Esbriet—the "As Good As It Gets" email. There was testimony that Afsarpour executed very few trades on InterMune until mid-December 2010, the eve of Esbriet's imminent approval announcement; that the days leading up to the announcement he encouraged friends to invest heavily in InterMune; and that the day before the public announcement he invested more heavily than ever before, in more highly leveraged transactions than ever before, using credit cards to fund his bets, which he had never done before. The SEC entered emails into the record in which, the day before the public announcement, Afsarpour wrote to friends telling them to get their money in that day before it was too late.

In the SEC's case-in-chief, the jury heard from Dan Welch, InterMune's CEO, who described the company's business and confidentiality policies generally. Steven Porter and Marianne Porter, doctors and InterMune executives, repeated InterMune's confidentiality policies, explained the process of regulatory review before the European Medicines Agency generally and for Esbriet in particular, described Dr. Sabrdaran's role in the group that worked on Esbriet's drug safety, and discussed who knew about its approval before the news became public. Dr. Spencer Hudson, another doctor on the Esbriet team, also testified about what he and the other members of the team knew as they shepherded the drug through the approval process. They testified that InterMune learned on December 10, 2010 that the European Medicines Agency would announce Esbriet's approval on December 17, 2010.

Apart from InterMune employees, two employees from IG Index testified. Bridget Messer, a financial services attorney who is the company's chief commercial officer, discussed the "spread bets" that IG Index offers, explaining how the company often hedges its customers' spread bets, how the contracts each customer—including Afsarpour—signs in advance of placing any spread bets inform them that IG Index might hedge, and how IG Index's internal compliance department investigated trades in InterMune in December 2010 and froze Afsarpour's account.

The company's chief information officer, Jonathan Noble, also testified, further explaining how spread bets work. He also described Afsarpour's IG Index spread bets and identified instances where IG Index hedged his bets, which he stated it did for a majority of his transactions. He noted that, prior to December 10, 2010, Afsarpour placed only three InterMune orders that were actually executed, whereas between then and December 17, 2010, he placed many more executed trades; and testified that Afsarpour made much riskier InterMune investments after December 10, 2010. As of the close of business on December 15, 2010, Afsarpour had approximately £145,000 on InterMune in his IG Index account. Of that amount, £20,000 pounds were deposited through credit cards that day. In contrast, Afsarpour made no credit card transactions from October 11 through December 9, 2010. Noble testified that an IG Index employee had telephone conversations with Afsarpour on December 13 and 14, 2010, and the jury heard recordings of those phone calls. As to hedging, Noble testified that IG Index did not itself purchase InterMune stock to hedge Afsarpour's bets. Instead, for some of the spread bets IG Index entered into contracts for difference ("CFDs") with a French brokerage in London called Cheuvreux and instructed that company to trade in the underlying stock; Noble did not know if Cheuvreux actually purchased the underlying stock on a U.S. market. He testified that IG Index hedged other spread bets through similar transactions with a brokerage called Macquarie.

Stockbroker Michael Burkoff testified that Afsarpour purchased 75 shares of InterMune stock through him on December 16, 2010, that the purchase was Afsarpour's idea, and that Afsarpour had called him months earlier to discuss InterMune for the first time.

SEC investigative attorney Drew Panahi testified extensively about the agency's investigation into Afsarpour's InterMune trades. Through Panahi, the jury was shown charts of Afsarpour's trades and his phone calls with Dr. Sabrdaran, which coincided, and his emails with the SEC where he denied knowing anyone at InterMune. Panahi told the jury that Afsarpour's profits from spread bets placed between December 10 and December 17, 2010 totaled $877,510.53. According to Panahi, Afsarpour said he knew IG Index would hedge his spread bets. An SEC economist, Dr. Carmen Taveras, also testified as an expert on the SEC's behalf. The jury was shown charts she prepared showing Afsarpour's daily payments into his IG Index account and how the percentage of his IG Index accounts dedicated to InterMune changed over time, largely after December 10, 2010.

The jury also heard from a number of Afsarpour's friends—either live or via videotaped deposition—who testified to what Afsarpour told them about InterMune and how they responded: by giving Afsarpour money to invest or opening...