United States Court of Appeals For the First Circuit
No. 19-1101
UNITED STATES OF AMERICA,
Appellee,
v.
HAROLD ALTVATER,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Howard, Chief Judge, Lynch and Barron, Circuit Judges.
Robert L. Sheketoff for appellant. Mark T. Quinlivan, Assistant United States Attorney, with whom Andrew E. Lelling, United States Attorney, was on brief, for appellee.
March 25, 2020 BARRON, Circuit Judge. Dr. Harold Altvater was
convicted in 2018 of three counts of securities fraud for insider
trading, in violation of 15 U.S.C. §§ 78j(b) & 78ff(a), and 17
C.F.R. § 240.10b-5. The District Court sentenced him to eighteen
months' imprisonment followed by a year of supervised release. On
appeal, Altvater challenges his convictions on a number of grounds.
We affirm.
I.
Ariad Pharmaceuticals, Inc. ("Ariad") is a small
Cambridge-based pharmaceutical company whose shares are traded on
the NASDAQ exchange. Altvater's then-wife, Maureen Curran, joined
Ariad in 2006 and eventually became the company's "head of
pharmacovigilance and risk management."
During the time in question, Ariad was developing a new
drug called Iclusig to treat chronic myeloid leukemia. Curran
oversaw the collection and disclosure of data regarding Iclusig's
safety and side effects as the drug underwent clinical testing.
Because of Curran's role in the company, she became privy to
confidential information regarding Iclusig's viability as a
marketable drug. As a result, both she and her spouse fell under
Ariad's insider trading policy.
Altvater had a history of trading in Ariad stock through
his private brokerage accounts, but, according to Curran, in
- 2 - September or October of 2013, she told Altvater to cease trading
in Ariad stock because of a company-imposed blackout period.
Despite this warning, over the next several months Altvater made
three series of trades in Ariad stock that took place just before
the public disclosure of information concerning the United States
Food and Drug Administration's ("FDA") assessment of Iclusig and
that drug's path toward continued use.
Altvater sat for a deposition with the United States
Securities and Exchange Commission ("SEC") on July 28, 2016, during
which he answered questions regarding what information about Ariad
he had learned from Curran and whether that information influenced
his decisions to trade in Ariad stock. About one year later, a
grand jury in the District of Massachusetts indicted Altvater on
three counts of federal securities fraud. Each count was based on
one of the series of trades described above.
On October 9, 2018, Altvater was convicted on all three
counts after a jury trial, and the District Court then sentenced
him to eighteen months in prison followed by a year of supervised
release. Altvater then timely filed his notice of appeal.
II.
Altvater first challenges the District Court's decision
to admit into evidence a "substantially redacted recording" and
- 3 - transcript of his SEC deposition.1 Altvater contends that this
version of the deposition "offer[ed] a 'massaged' version of his
statement, edited to do as much damage as possible to the
defendant's position at trial that he traded on publicly available
information based on his own views." Altvater further asserts
that the rule of completeness, as codified in Federal Rule of
Evidence 106, required the admission of the entire deposition and
thus all of the redacted portions.
Rule 106 provides that: "If a party introduces all or
part of a writing or recorded statement, an adverse party may
require the introduction, at that time, of any other part -- or
any other writing or recorded statement -- that in fairness ought
to be considered at the same time." (Emphasis added). "The rule
of completeness ordinarily comes into play when a statement is
offered to explain another statement that is being admitted into
evidence," United States v. Verdugo, 617 F.3d 565, 579 (1st Cir.
2010), as it is meant to prevent the jury from being misled by
reading or hearing a statement "out of context," Fed. R. Evid. 106
advisory committee's note to 1972 proposed rules. As a result,
the rule of completeness allows for the admission of otherwise
1 Although the government was able to admit Altvater's deposition statements into evidence as admissions of a party-opponent under Federal Rule of Evidence 801(d)(2), the bar against hearsay prevented Altvater from admitting his deposition statements directly into evidence.
- 4 - inadmissible statements only when such statements are
"explanatory" or "relevant to the admitted passages." United
States v. Williams, 930 F.3d 44, 58 (2d Cir. 2019) (quoting United
States v. Gupta, 747 F.3d 111, 139 (2d Cir. 2014)).
We review a preserved challenge to a district court's
Rule 106 determination for abuse of discretion. See United States
v. Bucci, 525 F.3d 116, 133 (1st Cir. 2008); see also United States
v. Houlihan, 92 F.3d 1271, 1283 (1st Cir. 1996) ("[W]hen the trial
court, acting in its discretion, finds that proffered excerpts,
standing on their own, are not misleading, its judgment is entitled
to great respect."). We see none here.
Altvater contends that the redacted version of the
deposition
could be fairly interpreted to mean that he and his wife spoke on a regular basis about their work, that he knew she was in possession of material non-public information, that she communicated with the FDA as part of her job, and that she always told him it was a bad idea to trade in Ariad stock, including a specific adamant warning not to trade in late September or early October of 2013.
Altvater then specifies that the redacted deposition made it seem
that he took advantage of conversations he had with Curran in order
to trade in Ariad stock before the public dissemination of material
information about Iclusig's development and viability. That being
so, Altvater contends, "the main thrust of the defendant's SEC
deposition was distorted" by the government's redactions, as "[a]
- 5 - fair assessment of his [entire] deposition was that he traded based
on his own idiosyncrasies, his reading of the public record[,]
. . . and without any material insider information from his wife."
But, Rule 106 is not a pathway to the admission of
otherwise inadmissible portions of a writing or recorded statement
merely because some distinct portions of that writing or statement
are admissible. See United States v. Awon, 135 F.3d 96, 101 (1st
Cir. 1998), abrogated on other grounds by United States v. Piper,
298 F.3d 47 (1st Cir. 2002). Thus, Altvater has the burden of
showing how the government's redactions created a
"misunderstanding or distortion" that "[could] only be averted by
the introduction of the full text of the out-of-court statement,"
id. (emphasis added), given that his objection was to the exclusion
of all the redacted material.
Altvater fails, however, to engage in the granular level
of analysis necessary to succeed on his challenge. Instead, he
focuses solely on the alleged distortions caused by the redactions
generally without fully analyzing why each of the redacted
statements -- or even those that he identifies as being the most
important -- needed to be admitted under Rule 106. In fact, while
Altvater acknowledges that there were "more than sixty full pages
worth of testimony removed entirely from a hundred and sixteen
page transcript, and hundreds of lines of testimony redacted on
the pages which were included," he requests that all of this
- 6 - redacted material be admitted without attempting to meet his burden
to explain why it would be necessary to admit into evidence each
and every statement contained in the redacted material to dispel
some alleged distortion caused by the government's redactions.
Thus, this challenge fails. See United States v. Simonelli, 237
F.3d 19, 28 (1st Cir. 2001) (rejecting the argument that "a general
attack on [a witness's] credibility" can justify the admission of
all of the witness's prior consistent statements under the rule of
completeness); United States v. Jackson, 180 F.3d 55, 73 (2d Cir.),
on reh'g, 196 F.3d 383 (2d Cir. 1999) ("The completeness doctrine
does not, however, require the admission of portions of a statement
that are neither explanatory of nor relevant to the admitted
passages.").
III.
Altvater next challenges certain limits that the
District Court placed on his ability to cross-examine Dr. Francis
MacMillan, a friend of Altvater's, about the content of a telephone
conversation that the two of them had regarding Ariad stock.
MacMillan, whom the government called as a witness, testified that
on December 12, 2013, Altvater told him over the phone "that there
would be some movement in the share price" of Ariad stock.
MacMillan further testified that Altvater's "tone was fairly
authoritative, that he knew what he was talking about," and that
- 7 - MacMillan suspected that Altvater's source of information was his
then-wife, Curran, who MacMillan knew worked for Ariad.2 In
addition, MacMillan testified that, in reliance on Altvater's
advice, he bought more shares in Ariad almost immediately after
the phone call ended.
On cross-examination, Altvater's counsel asked MacMillan
whether his phone conversation with Altvater also covered
Iclusig's ongoing use in Europe or the fact that Europe's
equivalent to the FDA had not expressed any concern about the
drug's use. The government objected to this line of questioning
on the ground that it sought testimony that would constitute
hearsay, as Altvater's statements on those subjects would not be
an admission of a party-opponent.
Altvater responded in turn that it would be unfair to
admit testimony about part of the telephone conversation between
Altvater and MacMillan but not "the rest of the conversation."
The District Court partially agreed, as it held that, although
MacMillan's recounting of Altvater's statements during that phone
call would indeed constitute hearsay, it would give Altvater "some
leeway" with regard to his ability to cross-examine MacMillan about
2 The government's theory was that Altvater himself bought Ariad stock on December 4, 2013, after he learned through Curran that there remained strong patient demand for Iclusig even though it had been pulled from the market. This knowledge seems to be what the government alleges led Altvater to tip his friend MacMillan off to the potential buying opportunity.
- 8 - statements Altvater made during the December telephone
conversation in light of the rule of completeness concerns that
Altvater had raised. Nevertheless, the District Court also ruled
that Altvater could not use this leeway to recite "a laundry list
of [his] statements" that he had previously made to MacMillan.
Altvater did not object to this ruling or make an offer
of proof as to what testimony he would have elicited if permitted,
though he did ask MacMillan whether he and Altvater "ever
discuss[ed] the European market." Altvater now claims, though,
that the District Court's restrictions on his cross-examination of
MacMillan violated his rights under the Sixth Amendment's
Confrontation Clause and Rule 106.
We note that Rule 106, by its text, does not apply to
unrecorded oral statements. As such, Rule 106 could not be used
to justify the admission of the unrecorded statements Altvater
made to MacMillan, see Verdugo, 617 F.3d at 579, though other
non-constitutional requirements might. See 21A Kenneth W. Graham,
Jr., Federal Practice and Procedure § 5074.1 (2d ed. 2019). The
government does not raise the point regarding the limits of Rule
106's reach, but both Altvater's Confrontation Clause and Rule 106
challenges are premised on the same assertion about the prejudicial
impact that he alleges that the restrictions on his ability to
cross-examine MacMillan caused. And, the government does
challenge that assertion. As we agree with the government's
- 9 - argument in that regard, we may bypass the dispute between the
parties over the proper standard of review. Compare United States
v. Berríos-Bonilla, 822 F.3d 25, 31 (1st Cir. 2016) (explaining
first that "we review de novo to determine whether the defendant
was afforded a reasonable opportunity to impeach adverse witnesses
consistent with the Confrontation Clause. If that threshold is
met, we review the specific limitation imposed by the trial court
on the defendant's cross-examination for an abuse of discretion.")
(internal citations, alterations, and quotations omitted), with
Bucci, 525 F.3d at 133 (describing standard of review for Rule 106
rulings as abuse of discretion).
Here, as the government points out, the District Court
permitted Altvater "some leeway" to elicit statements he made to
MacMillan during the December 12, 2013, phone call so long as those
statements could clear up any distortion of the conversation caused
by the government's presentation. Indeed, Altvater's counsel went
on to ask MacMillan about whether he and Altvater discussed the
European market for Iclusig on that phone call, which is the line
of questioning to which the government originally objected. Thus,
we do not see how Altvater can show the requisite prejudice on
that basis. Moreover, Altvater neither made an offer of proof
below concerning any other statements that Altvater sought to admit
through cross-examination of MacMillan nor identifies any such
statements now on appeal. It is thus not possible for us to
- 10 - determine if the District Court's decision prejudiced his defense
on the basis of any such statements. See United States v.
Steinmetz, 900 F.3d 595, 602 (8th Cir. 2018), cert. denied, 139 S.
Ct. 948 (2019). Therefore, we reject his challenge on this score,
too, whether it is framed in terms of the Confrontation Clause or
a non-constitutional requirement.
IV.
Altvater's third challenge is to the District Court's
decision to prohibit him from entering into evidence an email
exchange from November 12, 2013, between MacMillan and Altvater
that concerned the FDA's decision to pull Iclusig from development
despite the fact that the drug had received good reviews in The
New England Journal of Medicine. According to Altvater, "[t]he
email at issue demonstrated that MacMillan held strong views
independent of Dr. Altvater, and that he initiated the conversation
about the possible rebound of Iclusig." The District Court
excluded the email, however, because it ruled that the email could
not be admitted "in the absence of a witness."
Normally, we would review a challenge to the exclusion
of evidence for abuse of discretion, see United States v. Phoeun
Lang, 672 F.3d 17, 23 (1st Cir. 2012), but Altvater fails to
address the District Court's determinations that the email could
not be admitted without a witness, thereby waiving any challenge
- 11 - to this basis for the District Court's ruling, see United States
v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
We come then to the next-to-last challenge that Altvater
brings. It concerns the testimony of his ex-wife, Maureen Curran.
During direct examination, the government asked her
whether she learned, "[a]t some point in 2014," when the two were
still married, that Altvater had traded in Ariad stock "during
2013." She responded that she learned Altvater did indeed trade
in Ariad stock after she saw his name appear in a list from the
Financial Industry Regulatory Authority that named all of the
"people who had traded during a particular time
period" -- apparently referring to the blackout period imposed in
October of 2013. Shortly thereafter, the government asked Curran
"[w]hat . . . it mean[t] to [her] when [she] saw his name on that
list," which Altvater objected to on relevance and undue prejudice
grounds.
At a sidebar conference, the government's counsel stated
that Curran's "reaction is very relevant to the duty of trust and
confidentiality between the spouses and is revealing she can't
remember everything that happened before, but at this point she
does have memories." This duty of trust and confidence was a part
of the government's case, the government's counsel explained,
- 12 - because the government needed to establish it as part of its theory
that Curran was an "insider" under the relevant securities laws
and regulations.
In response, Altvater contended that the duty of trust
and confidence did not need to be proven at all. He based that
argument on his contention that the duty was legally presumed to
exist under SEC regulations when two people are married and living
together, as Altvater and Curran were at the time of the alleged
insider trading. The District Court agreed with the government
and found that Curran's answer would "go[] to part of the
government's burden of proof."
Over Altvater's renewed objections, Curran then
testified that she "was upset" and "very angry" upon learning of
Altvater's trades during the blackout period. She went on to
explain that she was upset because
this was . . . [not] an isolated incident. We -- we had been married for many years, and the relationship had a pattern to it. To me this . . . clearly demonstrated to me that my -- I wasn't important. This was my profession, this was my career, I've put a lot into it, and it's important. You know, to jeopardize me that way struck me as --
- 13 - When later asked "whether or not this was relevant to any kind of
trust you had in your husband," Curran responded that she "trusted
[Altvater] to put [her] first."3
Altvater contends that the District Court should have
excluded all of the above-referenced testimony -- including
Curran's testimony about her trust in Altvater and her reaction to
learning that Altvater had traded in Ariad stock during the
company-imposed blackout period -- under Federal Rule of Evidence
403.4 We review the District Court's decision on this point for
abuse of discretion. See United States v. DiRosa, 761 F.3d 144,
154 (1st Cir. 2014).
On appeal, the government and Altvater agree that the
government's theory of the case relied on a misappropriation theory
of insider trading, which "outlaws trading on the basis of
nonpublic information by a corporate 'outsider' in breach of a
duty owed not to a trading party, but to the source of the
information." United States v. O'Hagan, 521 U.S. 642, 652-53
(1997). Under this theory of insider trading, the government must
show that there was "a breach of a 'duty of trust and confidence'
3 Curran testified that she and Altvater divorced in 2017, approximately one year before Altvater's trial. 4 Rule 403 states: "The court may exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence."
- 14 - owed by the tipper," Altvater, "to the insider," Curran. United
States v. Parigian, 824 F.3d 5, 13 (1st Cir. 2016) (quoting
O'Hagan, 521 U.S. at 653).
The government and Altvater also agree that SEC Rule
10b5-2(b)(3) provides an illustrative list of relationships in
which a duty of trust and confidence exists. The rule states:
(b) Enumerated "duties of trust or confidence." For purposes of this section, a "duty of trust or confidence" exists in the following circumstances, among others: . . . (3) Whenever a person receives or obtains material nonpublic information from his or her spouse, parent, child, or sibling; provided, however, that the person receiving or obtaining the information may demonstrate that no duty of trust or confidence existed with respect to the information, by establishing that he or she neither knew nor reasonably should have known that the person who was the source of the information expected that the person would keep the information confidential, because of the parties’ history, pattern, or practice of sharing and maintaining confidences, and because there was no agreement or understanding to maintain the confidentiality of the information.
17 C.F.R. § 240.10b5-2.
The parties diverge, however, as to whether anything
more than the existence of a marriage in which the spouses live
together is necessary to show that a duty of trust and confidence
existed between Altvater and Curran. As Altvater sees it, "[t]he
test for whether a fiduciary relationship did actually exist
between the insider and a defendant is . . . an objective one, it
- 15 - has nothing to do with the subjective feelings of the insider."
When the insider and defendant are married and live together,
Altvater asserts, "a fiduciary duty is virtually automatic." As
a result, he contends, the testimony regarding Curran's feelings
about learning of Altvater's trades was of minimal relevance and,
given how she described those feelings, highly prejudicial,
thereby requiring its exclusion under Rule 403.
In response, the government contends that "marriage
alone is not sufficient to establish a duty of trust and
confidence." The government concedes that the SEC rule "creates
a presumption that spouses share a duty of trust and confidence
with each other," but it notes that the "presumption can be
defeated by a showing that there was no agreement or understanding
to maintain the confidentiality of the information based on the
parties' history, pattern, or practice of sharing and maintaining
confidences." For that reason, the government argues, "Curran's
testimony . . . was relevant to establish that she and Altvater
shared a duty of trust and confidence."
We have not yet decided whether "a marital relationship,
standing alone, is insufficient to show a history, pattern, or
practice of sharing confidences," United States v. Kanodia, 943
F.3d 499, 506 (1st Cir. 2019), and we need not do so here. Even
assuming that the prejudicial effect of Curran's testimony
substantially outweighed her testimony's probative value, a
- 16 - violation of Rule 403 is still subject to harmless error review.
See United States v. Dunbar, 553 F.3d 48, 59 (1st Cir. 2009)
(noting that when evidence is improperly admitted under Rule 403,
we review the admission to see if the "admitted evidence likely
affected the outcome of trial" (quoting United States v. Tom, 330
F.3d 83, 95 (1st Cir. 2003))).5 And, given the substantial evidence
of guilt that the government put forward in this case on each
count, we are confident that any error in admitting Curran's
testimony did not likely affect the jury's verdict. See, e.g.,
United States v. Serrano-Acevedo, 892 F.3d 454, 462 (1st Cir. 2018)
(refusing to reverse a conviction under harmless-error review
where there was "overwhelming" evidence of the defendant's guilt).
On count one, which covered Altvater's sales of Ariad
stock on October 3 and 4, 2013, the government put forward evidence
showing that Altvater had access to confidential data regarding
serious side effects observed in a recent Iclusig clinical trial
in the days before he made those trades. Moreover, Curran
testified that on October 2, 2013 -- the day before Altvater began
selling off his stock -- she returned to the family home after a
meeting with the FDA about Iclusig and began crying because she
5To the extent Altvater makes a pure relevance argument based on Federal Rule of Evidence 401, this same harmless-error standard would apply, and our decision would not change. See United States v. Sells, 477 F.3d 1226, 1239 (10th Cir. 2007) (applying harmless-error review after concluding that irrelevant evidence was admitted at trial).
- 17 - was so upset about how poorly the meeting had gone. Ariad then
announced on October 9, 2013, that it was, after consultation with
the FDA, halting participation in further clinical trials of
Iclusig due to the serious side effects that some patients
experienced while on the drug. This news caused a precipitous
drop in the value of Ariad stock, but, by selling early, Altvater
saved about $75,000.
As for count two, the government showed at trial that on
October 24, 2013, Curran and Ariad had another meeting with the
FDA regarding Iclusig, which Curran described as "tense [and]
contentious." An hour and a half after the meeting ended, Curran
called Altvater on the phone, and they spoke for about six minutes.
Twenty minutes after that conversation ended, Altvater sold all of
the Ariad stock that he had purchased since selling all of his
Ariad stock earlier that month. On October 31, 2013, Ariad
announced to the public that the FDA had pulled its approval of
Iclusig and that Ariad was suspending the drug's marketing.
Selling on October 24, 2013, saved Altvater about $19,000.
Finally, with regard to count three, the government
offered evidence showing that Altvater purchased $55,000 worth of
Ariad stock on December 4, 2013, the same day that Ariad submitted
its revised Risk Evaluation and Mitigation Strategy to the
FDA -- the last of the paperwork needed to get Iclusig reapproved.
The fact that Ariad made that submission that day was confidential
- 18 - information. When asked during his deposition with the SEC why he
purchased Ariad stock that day, Altvater explained that his
purchase was motivated, in part, by Curran having mentioned to him
that there continued to be strong demand for Iclusig from patients
despite the drug's side effects. Altvater also acknowledged in
that deposition that he knew that Ariad was working on bringing
Iclusig back to market and that Curran was working diligently on
that effort. Ariad announced to the public on December 20, 2013,
that it was resuming the marketing of Iclusig with the blessing of
the FDA, which caused an appreciation in the value of Ariad's
stock. Altvater then sold all of his Ariad stock on January 6,
2014, making a profit of about $21,000.
In light of that strong evidence of criminal conduct,
both circumstantial and direct, concerning the trades at issue in
the three counts, the discrete comments from Curran that Altvater
singled out for being especially prejudicial are harmless, even if
they were wrongly admitted in light of Rule 403. In so concluding,
we note that the District Court warned the jury in its instructions
that the jury "must not be influenced by any personal likes or
dislikes, prejudice, or sympathy." Given that we have a
"long-standing presumption that jurors follow instructions,"
United States v. Spencer, 873 F.3d 1, 16 (1st Cir. 2017), we see
no reason to think that, on this record, any prejudice resulting
- 19 - from the admission of Curran's testimony affected the trial's
outcome.
VI.
Altvater's final contention on appeal is that the
District Court erred when it refused to admit an article from The
New York Times entitled, "Doctors Fear Losing Leukemia Drug Deemed
Risky," which concerned the FDA's decision to suspend the marketing
of Iclusig despite the fact that, for many patients, there was no
alternative treatment available. Altvater tried to admit the
article twice during the proceedings, first when cross-examining
Curran and later during his case-in-chief.
During Altvater's first attempt to admit the article
into evidence, his counsel was permitted to ask Curran whether her
husband showed her any news articles about Iclusig after she
informed him that she knew he traded during the blackout period
and instructed him to get a lawyer. Curran testified that she
remembered seeing three other news articles at that time but
testified that she could not remember this article.
The District Court admitted into evidence the three
articles Curran recalled seeing, but it declined to admit this
article and others that Curran did not recollect seeing. At the
end of the government's case-in-chief, Altvater again tried to
- 20 - admit the article into evidence. The District Court declined,
however, to revisit its prior decision.
On appeal, Altvater argues that establishing what
information was on the public record, as shown through this
article, is key because "[i]f material information has been made
available to investors generally, even insiders may trade" on it.
But, even if the article was properly admissible, Altvater's
challenge would fail because any possible error on the part of the
District Court would have been harmless. See Dunbar, 553 F.3d at
59.
The article that Altvater sought to admit into evidence
was published on November 1, 2013, almost a month after the October
3 and 4, 2013, trades that constituted count one against Altvater,
and about eight days after the October 24, 2013, trade that led to
count two. As a result, the information contained in the article
was not public knowledge on the dates of those trades.
Nor can Altvater show that the article's exclusion
likely affected the outcome of the verdict on count three. It is
true, as Altvater notes, that the article briefly mentions that
"23 leukemia specialists and three patient advocacy groups" sent
the FDA a letter expressing the concern about Iclusig's
unavailability after the agency's October 31, 2013, decision to
pull the drug from the market. And, Ariad's chief medical officer
was indeed reported to have said that Ariad "hoped to return
- 21 - [Iclusig] to the market." But, those disclosures are beside the
point, as Altvater stated in his deposition with the SEC that he
purchased Ariad stock on December 4, 2013, after learning from
Curran that patients were expressing substantial demand for the
drug, a point not mentioned in the article, and after learning
from her that she was working diligently on returning the drug to
market, which is distinct from the mere hopes expressed in the
article.
VII.
We affirm Altvater's convictions.
- 22 -