United States v. Kanodia, s. 17-1137

• Decision Date: 22 November 2019
• Docket Number: Nos. 17-1137,17-1590,s. 17-1137
• Citation: 943 F.3d 499
• Parties: UNITED STATES of America, Appellee, v. Amit KANODIA, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

943 F.3d 499

UNITED STATES of America, Appellee,

v.Amit KANODIA, Defendant, Appellant.

Nos. 17-1137

17-1590

United States Court of Appeals, First Circuit.

November 22, 2019

Martin G. Weinberg, Boston, MA, with whom Kimberly Homan was on brief for appellant.

David M. Lieberman, Attorney, Criminal Division, Appellate Section, U.S. Department of Justice, with whom John P. Cronan, Acting Assistant Attorney General, William D. Weinreb, Acting United States Attorney, Randall E. Kromm, Assistant United States Attorney, and Brian A. Pérez-Daple, Assistant United States Attorney, were on brief for appellee.

Before Howard, Chief Judge, Lynch and Thompson, Circuit Judges.

HOWARD, Chief Judge.

A jury convicted Amit Kanodia of insider-trading securities fraud and related conspiracy offenses after a twelve-day trial. Kanodia challenges the sufficiency of the evidence to sustain his convictions, as well as various jury instructions. He also appeals the district court's denial of his motion for a new trial. For the reasons discussed below, we affirm Kanodia's convictions and the denial of his new trial motion.

I. Facts

To set the stage for our analysis of the sufficiency challenge, we sketch the facts in a manner hospitable to the jury's verdicts, while leaving some details for later in the opinion. See United States v. Rodríguez-Milián, 820 F.3d 26, 31 (1st Cir. 2016).

In or about 2007, Kanodia, an experienced real estate investor, met Shahana Basu, a U.S.-licensed lawyer living in London, England, through an online dating service. The two married in April 2008, at which time Basu moved in with Kanodia in Brookline, Massachusetts. In February 2012, Basu accepted the chief legal officer position at Apollo Tyres ("Apollo") in New Delhi, India. After Basu moved to New Delhi, Kanodia traveled to India roughly once every two or three months, staying with her for two or three weeks at a time.

In 2013, Basu helped negotiate Apollo's proposed purchase of Cooper Tires ("Cooper"), an American company. Apollo sought to use the acquisition to expand into the U.S. market. The rumors of that expansion had been in the financial press since late 2012. Apollo's insider-trading and confidential-information policies covered Basu's work at the company, including her role negotiating the Cooper transaction. Nevertheless, shortly after Basu started at Apollo in the fall of 2012, she began boasting to friends, sometimes in Kanodia's presence, that Apollo brought her on board to orchestrate its acquisition of Cooper.

By early April 2013, Apollo and Cooper preliminarily agreed on Cooper's purchase price. From April through May 2013, Basu resided at the Waldorf Hotel in New York City while conducting Apollo's due diligence on Cooper. Apollo considered the Cooper deal's confidentiality so important that it required Basu and other top executives to disguise their trip to New York to finalize the deal. They did so in part by splitting the trip from India into two legs, with two separate tickets. Kanodia stayed with Basu in her room at the Waldorf for several weeks beginning in early April. During her stay in New York, Basu disclosed to two acquaintances that she was in New York to negotiate Apollo's purchase of a company, in violation of Apollo's confidentiality policy. Both of Basu's disclosures occurred in Kanodia's presence.

Meanwhile, Kanodia disclosed to his two closest friends, Ifthikar Ahmed, a venture capitalist, and Steven Watson, a semi-retired businessman with a Harvard MBA, that Basu was in New York and that Apollo's purchase of Cooper would go forward. According to Watson, Kanodia chose to provide this information to his "best friends" because, if Kanodia personally traded based on his knowledge of the deal, he would risk getting Basu or himself into trouble. Instead, Kanodia expected that his friends would invest and some of the investment profits would be paid back to him. Kanodia sometimes updated Watson over the phone from Basu's room at the Waldorf. But he generally preferred to speak in-person to avoid detection.

That April, Kanodia told Ahmed and Watson that Apollo planned to purchase Cooper for $35 per share. Both friends bought shares of Cooper, then valued between $24 and $25 per share, in April and May 2013. Ahmed also bought call options in May.¹ The jury heard evidence that Kanodia called the two men shortly before some of their trades in Cooper's securities.

The companies announced the acquisition publicly on June 12, 2013. Kanodia, though, had informed Watson at least five days before about the public announcement. With that information, on June 7, 2013, Watson purchased call options on Cooper stock that entitled him to buy shares for $30. The options he purchased had an expiration date of July 20, 2013 or August 17, 2013. On June 10 and 11, Watson purchased additional Cooper call options, which also provided him the right to buy shares at $30 and which expired on August 17, 2013. Ahmed, too, traded in June 2013 prior to the deal's announcement; he also purchased options for $30, and his options expired on June 22, 2013. Additionally, Ahmed bought shares in Cooper during June 2013.

In their June 12, 2013 announcement, the companies disclosed that Apollo planned to purchase Cooper for $35 per share, precisely as Kanodia had tipped his friends. Cooper's share price rose 40% after the announcement, from about $25 to almost $35 per share. Watson made $167,000 in profits from selling his Cooper options and shares, while Ahmed made $1,100,000.

In August 2013, Kanodia created a new bank account for an entity called the Lincoln Charitable Foundation ("LCF"). Shortly after Kanodia opened the account, Ahmed wired $220,000 into it. Watson agreed to pay Kanodia a 25% after-tax commission on his profits and wrote a $22,500 check that was deposited into the LCF account in December 2013.

The FBI interviewed Watson about his trades. After initially telling the FBI that he purchased Cooper securities based on his research into the tire industry, he eventually recanted and accepted a plea deal in exchange for his cooperation. Kanodia was indicted in May 2015. Ahmed was indicted as well, but he fled the country after his initial appearance. A superseding indictment, filed in June 2015, charged both Kanodia and Ahmed with nineteen counts of insider-trading securities fraud and related conspiracy offenses, in violation of 15 U.S.C. §§ 78j(b), 78ff(a), 17 C.F.R. § 240.10b-5, and 18 U.S.C. §§ 2, 371.

II. Trial and Post-Trial Proceedings

At trial, the government alleged that Kanodia's tips to Ahmed and Watson constituted insider trading under the misappropriation theory of insider-trading securities fraud. Under this theory, corporate outsiders violate Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder when they trade on the basis of material, nonpublic information obtained from a corporate insider to whom outsiders owe "a duty of trust and confidence that prohibits them from secretly using such information for their personal advantage." Salman v. United States, ––– U.S. ––––, 137 S. Ct. 420, 423, 196 L.Ed.2d 351 (2016) ; 15 U.S.C. §§ 78j(b), 78ff(a) ; 17 C.F.R. § 240.10b-5. Outsiders who owe insiders a duty not to trade on such "inside information" also violate Section 10(b) and Rule 10b-5 when an outsider (the "tipper") tips another outsider (the "tippee") in exchange for a personal benefit. Salman, 137 S. Ct. at 423.

The government's case included testimony by Watson, by Apollo's chief financial officer, and by the chief operating officer of Ahmed's former employer. Its case also included documents revealing details about Kanodia's travel and the LCF bank account, about Ahmed's and Watson's financial transactions, and about Apollo's plans to acquire Cooper. After the close of the government's case, Kanodia unsuccessfully moved for a judgment of acquittal. Basu, who had gone to India, did not testify.

Kanodia's defense relied on witnesses who testified that Basu had told them about the Apollo-Cooper deal and on testimony by an expert who asserted that Cooper's financial performance indicated that its pre-deal announcement share price understated Cooper's true value. None of these witnesses claimed that Basu had disclosed the deal's price or announcement date. A different witness, Anand Mallipudi, testified that he understood that Basu had disclosed confidential information to him in telling him there were merger talks. Kanodia also introduced various news articles about Apollo's interest in acquiring Cooper. Kanodia renewed his motion for acquittal after presenting his case, which the district court denied.

On October 17, 2016, the jury convicted Kanodia on eleven counts of insider-trading securities fraud related to Ahmed's purchases of options and stock in May and June 2013 and Watson's trades in options in June 2013. The jury acquitted Kanodia for the two men's other share purchases in April and May. Kanodia moved for a judgment of acquittal and a new trial, which the district court denied. In due course, the district court sentenced Kanodia to a substantially below guidelines term of 20 months incarceration. Kanodia timely appealed.

In February 2017, Kanodia again moved for a new trial based on purportedly newly discovered Indian media reports and witnesses. The anonymously sourced, mostly Hindi- and Urdu-language reports offered various estimates that were close to the eventual deal price and announcement date. Kanodia also offered five purportedly newly-discovered witnesses, who averred in affidavits that Basu had told them the deal price and announcement date before the announcement. The district court denied this new trial motion on the grounds that the reports could have been discovered with due diligence before trial and that the witnesses were cumulative. Kanodia seasonably appealed both his conviction and that order, and we subsequently consolidated both appeals.

III. Kanodia's Conviction and...