On June 8, 2020, the US District Court for the District of Massachusetts granted the US Securities and Exchange Commission’s motion for summary judgment for civil insider trading offenses against a defendant who was convicted of insider trading in a related criminal action filed by the US Department of Justice. Both cases are based in part on actions taken in 2015, by defendant Schultz Chan and codefendant Songjiang Wang, for insider trading that allegedly occurred while Chan worked for Akebia Therapeutics, Inc., a biopharmaceutical company based in Massachusetts. Based on a tip from Wang who worked for Merrimack Pharmaceuticals, Chan allegedly purchased Merrimack stock. Chan also purchased Akebia stock and advised his wife and Wang to do the same, based on material nonpublic information related to one of Akebia’s clinical trials. After all parties purchased Akebia stock, Akebia announced the positive results of the clinical trial, and the stock increased by 45 percent resulting in Chan making unlawful profits of $68,699.
The government filed a criminal complaint against Chan and Wang on June 13, 2016, charging Chan with conspiracy to commit securities fraud , and three counts of insider trading. The next day, the SEC filed its civil complaint against Chan, based on the same factual allegations as in counts three and four of the DOJ’s superseding indictment. The court stayed the SEC’s civil proceeding until the parallel criminal action was resolved. In July of 2018, Chan was convicted on all four criminal counts, and sentenced to thirty-six months in prison, charged a $65,000 fine, and $153,428.72 in restitution. Chan appealed his conviction.
On June 13, 2019, the court lifted the stay, and the SEC filed for summary judgment, arguing that Chan was collaterally estopped from disputing the facts of his criminal conviction – facts that according to the SEC, proved the violations alleged in the complaint. Chan argued that collateral estoppel was not appropriate because his appeal in the criminal action was still pending. He also alleged procedural errors at trial, and asserted that the government presented inconsistent theories at trial. The court, however, granted the summary judgment, reasoning that collateral estoppel was appropriate because the criminal and civil cases involved the same conduct and relied upon the same factual allegations.
The court permanently enjoined Chan from further violations of Section 10(b) Securities Exchange Act of 1934 and Rule 10b-5 thereunder, imposed a five-year ban on serving as an officer or director of a public company, and ordered disgorgement of $68,699 in illicit profits, and $13,738 in prejudgment interest. The court declined to impose a civil penalty because there was no evidence that Chan had attempted to conceal the illegal trades.