United States v. Chan, 16-17797

• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)
• Parties: UNITED STATES OF AMERICA, Plaintiff-Appellee, v. CHENHSIN CHAN, a.k.a. Paul Chan, Defendant-Appellant.
• Docket Number: No. 16-17797,16-17797
• Decision Date: 04 April 2018

UNITED STATES OF AMERICA, Plaintiff-Appellee,
v.
CHENHSIN CHAN, a.k.a. Paul Chan, Defendant-Appellant.

No. 16-17797

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

April 4, 2018

DO NOT PUBLISH

Non-Argument Calendar

D.C. Docket No. 1:14-cr-00203-ODE-AJB-1

Appeal from the United States District Court for the Northern District of Georgia

Before ED CARNES, Chief Judge, TJOFLAT, and NEWSOM, Circuit Judges.

PER CURIAM:

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A jury convicted Chenhsin Chan of ten counts of mail fraud, 18 U.S.C. §§ 1341 and 2, ten counts of introducing adulterated food into interstate commerce, id. §§ 331(a) and 333(a)(2), five counts of distributing a listed chemical, 21 U.S.C. § 841(f)(1) and 18 U.S.C. § 2, and five counts of money laundering, id. §§ 1957 and 2. All of those counts relate to a seven year scheme through which Chan made millions selling dietary supplements containing ephedrine. The jury returned a special verdict finding certain assets forfeitable, including several rare gold coins, a Lamborghini, a house in New York, and $666,000 cash. The district court sentenced Chan to 135 months and ordered him to forfeit specified assets. Chan appeals his convictions and sentence.

I.

In 2004 the Food and Drug Administration banned dietary supplements containing ephedrine by deeming them "adulterated foods." 21 C.F.R. § 119; see 21 U.S.C. § 331(a) (prohibiting introduction of adulterated foods into interstate commerce). Because ephedrine can be used to make methamphetamine, it is a "list I" chemical, 21 U.S.C. § 802(34)(C), and anyone seeking to distribute it must get authorization from and register with the Drug Enforcement Agency, id. § 823(h).

At trial the government presented evidence that from 2005 to 2012 Chan operated a website that sold dietary supplements containing ephedrine. Testimony showed that Chan never registered with the DEA and received warnings that it was

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illegal to sell supplements containing ephedrine. An FDA investigator testified that in 2005 he told Chan that the FDA had adopted a rule banning supplements containing ephedrine. Chan told the investigator that he thought the FDA rule was suspended because a Utah district court ruled that it exceeded the FDA's statutory authority. The investigator told Chan that the FDA rule remained in effect.

Despite that warning, Chan continued to sell supplements containing ephedrine. His source was a company called Hi-Tech Pharmaceuticals. Hi-Tech employees testified that the company stopped producing supplements containing ephedrine in 2006 but continued to sell leftovers to Chan. One employee sold Chan supplements containing ephedrine in 2009. That employee knew the supplements were banned in the United States but thought they could be exported, so he put a notice to that effect in each shipment. Another employee said that he told Chan that the supplements were banned after seeing them on Chan's website.

Chan kept selling supplements containing ephedrine until August 2012, when federal agents executed a search warrant on Chan's parents' home and seized more than 100 boxes of supplements. They also executed a search warrant on Chan's car and seized supplements and incorporation records for the company through which Chan sold those supplements. Two FDA chemists testified that several seized supplements tested positive for ephedrine.

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A fraud examiner who reviewed Chan's bank records testified that he had deposited into his account more than $11 million from website sales. The examiner testified that Chan withdrew funds from that account to purchase a Lamborghini, a Mercedes Benz, a house in New York, and several rare gold coins.

An FDA agent testified that Chan used a system called CartManager to process credit card payments for website purchases. The agent isolated sales figures for dietary supplements containing ephedrine and concluded that Chan received in excess of $4.5 million from selling supplements containing ephedrine.

The agent also testified about statements that Chan published on his website about the legality of ephedrine. He introduced screen captures of the website from 2005 to 2012, one of which stated that "[t]he FDA has approved the use of Ephedrine . . . for the treatment of asthma, colds, allergies, or any other disease." Another, titled "Is Ephedra legal," stated:

Let me answer that question by saying that ephedrine has never been illegal. It is legal to purchase ephedrine both natural and synthetic (Ephedrine HCL made by Vasopro) for its intended use which is a decongestant and bronchodilator. It will also provide energy, appetite suppression and increase your metabolism which leads to weight loss. It will also increase your blood pressure so do not take it with any blood pressure medication, antidepressants or if you have a history of heart disease. Read all warnings before using and consult with your physician before use.

The agent testified that those statements were false and misleading because Chan's website sold only dietary supplements, not bronchodilators or decongestants.

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Several customers testified that they bought dietary supplements containing ephedrine from Chan's website and that they believed those supplements were legal to sell and safe to use. Some customers testified that they experienced adverse effects from the supplements, including headaches, anxiety, and nausea.

The jury ultimately convicted Chan of all 30 counts, which yielded a guidelines range of 262 to 327 months imprisonment. The district court varied downward and sentenced him to 135 months. It also ordered him to forfeit assets obtained by the fruits of his offenses. This is Chan's appeal.

II.

Chan raises six issues on appeal. We address each in turn.

A.

Chan contends that the evidence was insufficient to sustain the mail fraud convictions. We review de novo the sufficiency of the evidence, viewing the evidence and drawing all inferences from it in favor of the verdict. United States v. Isaacson, 752 F.3d 1291, 1303 (11th Cir. 2014). Chan did not preserve this issue, so we will not disturb the verdict unless failure to do so would result in a miscarriage of justice. United States v. Tapia, 761 F.2d 1488, 1491 (11th Cir. 1985).

Chan argues that the government failed to prove "an intentional participation in a scheme to defraud." United States v. Smith, 934 F.2d 270, 271 (11th Cir.

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1991). He asserts that his mail fraud convictions cannot stand because the government did not prove that his customers relied on his false and misleading statements. But reliance is not an element of mail fraud. See United States v. Clay, 832 F.3d 1259, 1309 (11th Cir. 2016).

Relying on United States v. Takhalov, 827 F.3d 1307 (11th Cir. 2016), Chan argues that he did not defraud his customers because they "got exactly what they paid for" and as a result his statements did not mislead them about the "nature of the bargain." Id. at 1312. But his customers did not get "exactly what they paid for" because they paid for supplements...