United States v. Kosinski

• Decision Date: 22 September 2020
• Docket Number: No. 18-3065,August Term 2019,18-3065
• Citation: 976 F.3d 135
• Parties: UNITED STATES of America, Appellee, v. Edward J. KOSINSKI, Appellant.
• Court: U.S. Court of Appeals — Second Circuit

976 F.3d 135

UNITED STATES of America, Appellee,

v.Edward J. KOSINSKI, Appellant.

No. 18-3065

August Term 2019

United States Court of Appeals, Second Circuit.

Argued: October 30, 2019

Decided: September 22, 2020

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.

Before: Cabranes and Raggi, Circuit Judges, and Korman, District Judge.^*

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 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.

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, 99 S.Ct. 2781, 61 L.Ed.2d 560 (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. 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.

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. He also separately acknowledged and agreed to the CSRA in his personal capacity as the principal investigator.

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.

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.

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.

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...