United States Court of Appeals For the First Circuit
Nos. 17-1137 17-1590 UNITED STATES OF AMERICA,
Appellee,
v.
AMIT KANODIA,
Defendant, Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Howard, Chief Judge, Lynch and Thompson, Circuit Judges.
Martin G. Weinberg, 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.
November 22, 2019 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
- 2 - 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
- 3 - 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
1 A call option is an agreement that permits an investor to purchase a financial instrument at a set price before a certain date. This allows the investor to bet on whether an instrument's market value will increase or decrease without the investor having to pay the instrument's current market price. Thus, an investor can earn a significant profit if the instrument's price changes as the investor predicts, but the investor may lose the entire cost of the options contract if it does not. See First Commodity Corp. of Bos. v. CFTC, 676 F.2d 1, 2 (1st Cir. 1982) (Breyer, J.).
- 4 - 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 dates 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
- 5 - 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, 137 S. Ct. 420, 423
(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.
- 6 - 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
- 7 - 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 the Sufficiency of the Evidence
Kanodia presents two challenges to the sufficiency of
the evidence to sustain his convictions. First, he argues that
the jury's verdicts rest on insufficient evidence to show that he
owed Basu a duty of trust and confidence. Alternatively, he
contends that the government failed to prove that he violated that
duty willfully. His arguments are unavailing.
- 8 - A. Standard of Review
We review sufficiency-of-the-evidence challenges de novo
and construe the trial evidence in the light most favorable to a
jury's verdict. United States v. Franco-Santiago, 681 F.3d 1, 8
(1st Cir. 2012); United States v. Ridolfi, 768 F.3d 57, 59 n.1
(1st Cir. 2014). Accordingly, we "do not 'assess the credibility'
of witnesses because 'that is a role reserved for the jury.'"
United States v. Robles-Alvarez, 874 F.3d 46, 50 (1st Cir. 2017)
(quoting United States v. Rivera-Donate, 682 F.3d 120, 134–35 (1st
Cir. 2012)). Out of deference to the jury's role, we only upset
jury verdicts where "no rational jury could have found the
defendant guilty beyond a reasonable doubt." United States v.
McPhail, 831 F.3d 1, 5 (1st Cir. 2016) (internal alterations
omitted) (quoting United States v. Prieto, 812 F.3d 6, 13 (1st
Cir. 2016)).
B. Duty of Trust and Confidence
Because the government prosecuted Kanodia on a
misappropriation theory of insider trading, the jury needed to
find that Kanodia breached a duty of trust and confidence owed to
a corporate insider, namely, Basu. See McPhail, 831 F.3d at 4.
The parties agree that such a duty may arise where the insider and
outsider share "a history, pattern, or practice of sharing
confidences." United States v. Parigian, 824 F.3d 5, 14 (1st Cir.
2016) (quoting 17 C.F.R. § 240.10b5-2). They dispute only whether
- 9 - the government presented enough evidence for a reasonable jury to
conclude that Kanodia shared such a "history, pattern, or practice
of sharing confidences" with Basu.
In two prior cases, we have considered what evidence
will support a jury finding of a duty based on history, pattern,
or practice. In Parigian, we decided that an indictment of a
tippee-outsider properly alleged that the tipper-outsider owed
such a duty to a corporate insider where the indictment merely
asserted that the insider and the tipper were friends who had an
understanding that their discussions about business were to remain
secret. Id. at 9, 14. A jury later convicted the Parigian tipper
at trial, and we affirmed the sufficiency of the evidence in
McPhail, 831 F.3d at 7. We held in McPhail that the government
had adduced sufficient evidence of a "history, pattern, or practice
of sharing confidences," based on testimony from the corporate
insider that the insider and tipper were golf partners who spoke
daily (often about each other's business), helped each other
resolve financial and marital issues, and traveled together. Id.
at 3. The insider had also testified that he told the tipper to
keep information about the insider's employer confidential. Id.
at 5.
While we have not considered the question, other
circuits have held that a marital relationship, standing alone, is
insufficient to show a history, pattern, or practice of sharing
- 10 - confidences. See SEC v. Yun, 327 F.3d 1263, 1272-73 (11th Cir.
2003); United States v. Chestman, 947 F.2d 551, 571 (2d Cir. 1991)
(en banc). We need not resolve that question today, because the
jury was not required to rest its findings solely on Kanodia's
marriage to Basu. Indeed, the jury could have credited the wealth
of testimony indicating that Kanodia and Basu not only shared
confidences in the history of their marriage, but also in their
business and career advisory relationships.
For instance, Watson testified that Kanodia had helped
Basu obtain employment in Boston. He further stated that Kanodia
introduced Basu to Kanodia's business contacts to help Basu find
clients. And Basu's tips to his friends were a species of
confidential business information that the jury could infer were
regularly shared by the couple. Watson acknowledged that Kanodia
provided him with the exact offer price and announcement date, and
the jury could infer that this information originated with Basu,
not the least because Watson testified that Kanodia told him that
Basu was working on the deal. Moreover, the jury could infer that
Kanodia, as an entrepreneur with an MBA, was sophisticated enough
to know that Basu's disclosures violated her duty of
confidentiality to Apollo. Further, Basu allowed Kanodia access
to the confidential papers about the acquisition by allowing him
to stay in her Waldorf suite, even though Kanodia's presence
created a reportable confidentiality risk. Consequently, the jury
- 11 - could conclude that Kanodia knew that information about Apollo was
not his to share.
Contrary to Kanodia's claims on appeal that the
government introduced little evidence about the nature of their
marriage relationship, Watson provided evidence that Kanodia and
Basu enjoyed a close relationship. Before Basu's taking the job
at Apollo, she lived with Kanodia in Massachusetts. After she
left for India, Kanodia frequently flew to India to spend weeks at
a time with her. And during their stay at the Waldorf in April
and May 2013, the couple socialized with friends together.
Kanodia argues that it is improper to rely on the tips
themselves to establish a pattern of sharing confidences; he
emphasizes that the duty must have existed prior to the tips. But
the jury had before it ample evidence that these disclosures
occurred in the context of the pair's previously shared marriage,
business activities, and close personal relationship. The jury
could reasonably infer that Kanodia and Basu shared a prior
history, pattern, or practice of sharing business confidences.
Kanodia also argues that because Basu disclosed her role
working on the deal to others, she (and consequently he) did not
consider the information confidential. The jury reasonably found
otherwise. The trial record shows that Basu merely boasted about
her work on the proposed deal in general terms and did not share
with those to whom she boasted the specific details as to price
- 12 - and timing that Watson testified he relied on to trade. Moreover,
the jury reasonably could have concluded that she disclosed
information with the understanding that her acquaintances would
keep the information confidential, an inference supported by
Mallipudi's testimony that he "presumed" exactly that. Because
the jury could credit Watson and Mallipudi's testimony, sufficient
evidence existed to show that Kanodia owed Basu a duty of trust
and confidence.
C. Willful Breach
The evidence similarly suffices to prove Kanodia's
willful breach of his duty to Basu.
For Kanodia's convictions to stand, there must be enough
evidence to permit a rational jury to infer that Kanodia acted
willfully. 15 U.S.C. § 78ff(a); United States v. O'Hagan, 521
U.S. 642, 665-66 (1997). "[I]n order to establish a willful
violation of a statute, the Government must prove that the
defendant acted with knowledge that his conduct was unlawful."
Bryan v. United States, 524 U.S. 184, 191-92 (1998) (internal
quotations omitted) (quoting Ratzlaf v. United States, 510 U.S.
135, 137 (1994)). Because willfulness is a mental state, only
rarely is it proven by direct evidence. United States v. Bank of
New Eng., N.A., 821 F.2d 844, 854 (1st Cir. 1987).
Here, the jury heard strong circumstantial evidence
showing that Kanodia acted with knowledge that his scheme violated
- 13 - the law. In addition to the evidence described above, Kanodia's
methods of carrying out his scheme betray a consciousness of
wrongdoing. See United States v. Zanghi, 189 F.3d 71, 81 (1st
Cir. 1999) (holding that "evidence of conduct tending to mislead
or conceal" permits a jury to infer willfully unlawful conduct).
According to Watson, Kanodia attempted to conceal his
communications with Watson by avoiding written messages and
speaking in vague terms over the telephone. Watson also testified
that Kanodia told him that he could not trade himself. And,
significantly, Kanodia disguised the kickbacks that he received
from Ahmed and Watson as purported charitable donations to LCF.
IV. Jury Instructions
Kanodia further appeals the district court's decisions
to give or refuse to give certain jury instructions. First, as to
a willful blindness instruction given by the trial judge, Kanodia
asserts that the instruction lacked a sufficient evidentiary
basis. Second, Kanodia also argues that the district court
erroneously denied his requests to instruct the jury that to
convict, it needed to find that (1) Ahmed and Watson actually used
-- as opposed to merely possessed -- material, nonpublic
information when trading in Cooper securities in order to be
trading "on the basis of" material, nonpublic information, see
O'Hagan, 521 U.S. at 652-53; (2) Basu did not waive Kanodia's duty
- 14 - of trust and confidence to her; and (3) Kanodia deceived Basu by
tipping Ahmed and Watson. None of these objections merit relief.
A. Willful Blindness
We assume, solely arguendo but favorably to Kanodia,
that we evaluate de novo the contention that the trial evidence
did not support a willful blindness instruction. Compare United
States v. Parker, 872 F.3d 1, 14 (1st Cir. 2017) (reviewing de
novo), with United States v. Valbrun, 877 F.3d 440, 445 (1st Cir.
2017) (observing that previous panels have applied abuse-of-
discretion review). The trial evidence warrants a willful
blindness instruction if "(1) a defendant claims a lack of
knowledge, (2) the facts suggest a conscious course of deliberate
ignorance, and (3) the instruction, taken as a whole, cannot be
misunderstood as mandating an inference of knowledge." United
States v. Azubike, 564 F.3d 59, 66 (1st Cir. 2009).
Kanodia only disputes that the evidence satisfies the
second requirement: whether the facts suggest a conscious course
of deliberate ignorance. To meet this element, the government
must demonstrate "warning signs that call out for investigation or
evidence of deliberate avoidance of knowledge," that is,
sufficient "red flags." United States v. Appolon, 695 F.3d 44, 57
(1st Cir. 2012). Here, the jury could infer that, as a highly-
educated, savvy businessman, Kanodia deliberately avoided
investigating red flags indicating that he had a duty of trust and
- 15 - confidence to Basu which he could not violate. Information about
proposed business mergers is widely understood to be highly
valuable and therefore sensitive. See Basic Inc. v. Levinson, 485
U.S. 224, 238 (1988) ("[A] merger in which [a company] is bought
out is the most important event that can occur in a small
corporation's life." (quoting SEC v. Geon Indus., Inc., 531 F.2d
39, 47–48 (2d Cir. 1976) (Friendly, J.)). That sensitivity should
have been self-evident to Kanodia. Indeed Mallipudi, a friend, not
a husband, testified that he "presumed" that Basu's bare
disclosures about the existence of Apollo-Cooper merger talks
should be kept secret. Kanodia not only told Watson that Kanodia
could not trade on the information because of Basu's job, but also
conditioned his tips on Watson kicking him back some of Watson's
trading profits. Based on this evidence, the jury could find that,
if Kanodia did not know that he was prohibited from profiting from
Watson's trading on the confidential deal details, then his
ignorance was willful.
Kanodia offers two rejoinders to this conclusion.
First, he argues that evidence about "Basu's unilateral
expectations" of confidentiality lacks probative value because
Basu's disclosures to other businesspeople occurred in Kanodia's
presence. His objection is misplaced. The trial record does not
show that Basu disclosed the offer price or the announcement date
to her business acquaintances. Further, her general boasts about
- 16 - her playing a role in the merger talks alerted at least Mallipudi
to the confidential nature of the information. Second, Kanodia
points to the purported differences in "business cultures" between
India and the United States. But Kanodia cites no trial evidence
in support of this factual proposition. And assuming that those
differences do in fact exist, both Kanodia and Basu had extensive
business experience in the United States and both had earned
American professional degrees. Kanodia was thus well-equipped to
navigate any purported differences between American and Indian
business cultures. The trial record contained sufficient warning
signs to justify a willful blindness instruction.
Even if the willful blindness instruction were
unjustified, the error would have been harmless because the
government presented sufficient evidence that Kanodia actually
knew that his tips violated the law. See United States v. Fermin,
771 F.3d 71, 79 (1st Cir. 2014). Among other facts, Kanodia's
statements that he could not trade himself, his directions to send
money to LCF, and his business experience all provide sufficient
grounds for the jury to infer Kanodia's actual knowledge of his
disclosure's unlawfulness.2 There was no reversible error in the
district court's willful blindness instruction.
2 Furthermore, it is not at all likely that the jury convicted Kanodia on a theory of negligence or recklessness. See United States v. Littlefield, 840 F.2d 143, 148 n.3 (1st Cir. 1988) (identifying the harm from an improvidently given willful
- 17 - B. "On the Basis of" Instruction
Turning next to Kanodia's claims of error regarding the
rejection of his preferred instructions, Kanodia asserts that the
district court improperly instructed the jury on the definition of
trading "on the basis of" material, nonpublic information. See
O'Hagan, 521 U.S. at 652–53. We review de novo whether the
district court's instruction correctly stated the law. United
States v. McDonough, 727 F.3d 143, 156 (1st Cir. 2013).
Nevertheless, we will not disturb a verdict, notwithstanding a
legally incorrect instruction, if the instructional error was
harmless. See United States v. Sasso, 695 F.3d 25, 29 (1st Cir.
2012). Our inquiry is not "whether there was enough to support
the result" but "whether the error itself had substantial
influence" on the jury's verdict. Kotteakos v. United States, 328
U.S. 750, 765 (1946).3 This case presents no need for us to fully
blindness instruction as the jury mistakenly convicting the defendant on a negligence theory). 3Kanodia's reply brief characterizes his objection to this instruction as relating to due process. Appellants suffering a constitutional error, as opposed to a trial error, are entitled to reversal unless the court can "declare a belief that [the error] was harmless beyond a reasonable doubt." Chapman v. California, 386 U.S. 18, 24 (1967). Even though Kanodia's reply brief suggests that the instruction violates the Fifth Amendment by creating a mandatory presumption, his initial brief argues that the instruction erroneously interprets Section 10(b) of the Exchange Act. We thus apply Kotteakos's standard here. See Pignons S.A. de Mecanique v. Polaroid Corp., 701 F.2d 1, 3 (1st Cir. 1983) (holding that claims not raised in the appellant's initial brief are waived).
- 18 - resolve how to determine whether a trade is "on the basis of"
material, nonpublic information, however, for even if the
government must show that the tippee used the information to
convict a tipper, Kanodia's conviction would stand.
1. The District Court's Instruction
The district court instructed the jury that, to show
that a trade was on the basis of material, nonpublic information,
"[a]ll that is required is that [Ahmed and Watson] were in
possession of the material non-public information at the time that
they traded." Kanodia disputed that Ahmed and Watson's mere
possession of confidential information sufficed; he insisted that
the government must prove that they actually used the tips to
trade. Specifically, Kanodia requested the jury be instructed
that the government needed to prove beyond a reasonable doubt that
Ahmed or Watson:
placed trades in Cooper securities on the basis of material, non-public information received from Mr. Kanodia in violation of Mr. Kanodia's fiduciary or confidentiality duties owed to Ms. Basu. For trades to be on the basis of material, non-public information, you must find that Mr. Watson and/or Mr. Ahmed were in possession of confidential material, non-public information and used that information in consummating their transactions. . . .
The district court denied Kanodia's request, and Kanodia objected
to the district court's failure to instruct the jury that the
- 19 - material non-public information needed to have been both possessed
and used to support conviction.4
2. If There Was Any Error, It Was Harmless
The government introduced more than enough evidence as
to use to sustain Kanodia's conviction. Watson testified that he
relied on Kanodia's tips to trade. Kanodia sometimes placed phone
calls to both men shortly before they traded. Ahmed and Watson
invested heavily in Cooper as Kanodia continued to feed them
information. Moreover, they bought options that would have proven
worthless if Cooper's share price did not jump quickly. And both
transferred a combined sum of $242,500 to the LCF account
controlled by Kanodia after profiting handsomely on their trades.
Although the government opposed Kanodia's requested
instruction, it refrained from suggesting that Ahmed and Watson's
mere possession of Kanodia's tips sufficed to show Kanodia's
culpability. Accordingly, any instructional error did not have a
substantial influence on the jury's verdict.
4 Kanodia renews this objection on appeal, but we bypass it. The government argues that the district court instruction was properly based upon the SEC's interpretation of Section 10(b) in Rule 10b5-1 (which the government argues deserves Chevron deference). See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984). We need not address this issue, because any error was harmless.
- 20 - C. Waiver of Duty
Kanodia also contests the district court's refusal to
instruct the jury that it must find that Basu did not waive
Kanodia's duty of trust and confidence to her. Kanodia's briefing
is unclear whether he is asserting that this omission constitutes
a failure to instruct the jury as to all the elements of the
charged offense or to give a required theory-of-the-defense
instruction. It appears that at trial Kanodia requested an
instruction that the government had to prove that Basu did not
waive Kanodia's duty as an element of the offense. On appeal,
Kanodia appears to shift tactics, framing his argument at some
points as a request for a theory-of-the-defense instruction and at
others for an elements instruction. Whether Kanodia requested an
elements or theory-of-defense instruction -- and thus regardless
of whether de novo or plain error review applies -- his argument
fails. McDonough, 727 F.3d at 156 (elements of offense); United
States v. Peake, 804 F.3d 81, 98 (1st Cir. 2015) (theory of the
defense). The failure to give a requested theory-of-the-defense
instruction triggers reversal only if the instruction was "(1)
substantively correct as a matter of law, (2) not substantially
covered by the charge as rendered, and (3) integral to an important
point in the case so that the omission of the instruction seriously
impaired the defendant's ability to present his defense." United
States v. Baird, 712 F.3d 623, 628 (1st Cir. 2013).
- 21 - While Kanodia's duty was "integral to an important point
in the case," Kanodia's requested instruction was incorrect as a
matter of law. Peake, 804 F.3d at 98. Kanodia does not claim
that any court has required the government to prove that the
insider did not explicitly waive an outsider's duty of trust and
confidence in order to sustain an insider trading conviction. See
McPhail, 831 F.3d at 6 (holding that an insider's disclosures to
individuals other than the defendant-outsider might show the
nonexistence of a duty). The insider cannot waive the duty, and,
to the extent Basu's knowledge of disclosures might go to the
nonexistence of a duty, the district court's instruction
"substantially covered" the applicable theory. Kanodia, like the
tipper in McPhail, could -- and did -- argue that Basu's
disclosures defeated any duty of confidentiality he owed to her.
Unfortunately for Kanodia, a reasonable jury could have found such
a theory implausible, for, among other reasons, Kanodia received
much more specific and sensitive disclosures than the outsiders
who testified at trial. Accordingly, the district court did not
err in refusing to give Kanodia's waiver instruction.
D. Deception
Kanodia's final claim of instructional error faults the
district court for failing to focus the jury's attention on whether
he deceived Basu. Here again, Kanodia does not clearly indicate
whether he believes that the district court omitted elements of
- 22 - the offense or wrongly declined to give a theory-of-the-defense
instruction. Framed either way, his argument is unpersuasive.
Kanodia principally relies on the O'Hagan Court's
statement that "if the fiduciary discloses to the source that he
plans to trade on the nonpublic information, there is no 'deceptive
device' and thus no § 10(b) violation." 521 U.S. at 655 (quoting
15 U.S.C. § 78j(b)). But this statement does not establish the
deception of the person to whom the misappropriator owed a duty is
an element of the offense.
More importantly, the breach of the duty of trust and
confidence itself has long been held to be the deceptive device
that the government must prove. See id. at 652 ("[A] person
commits fraud in connection with a securities transaction, and
thereby violates § 10(b) and Rule 10b–5, when he misappropriates
confidential information for securities trading purposes, in
breach of a duty owed to the source of the information." (internal
quotation marks omitted)). The O'Hagan Court simply stated that
no breach of a duty occurs when the evidence tends to show that an
insider allowed an outsider to share the insider's confidential
information. It did not require the government to prove a
negative, and Kanodia does not identify any precedent doing so
either. Thus, insofar as Kanodia purports to raise an objection
based on the district court's failure to state the offense's
elements, the objection is off-base.
- 23 - Even interpreted as an objection based on the district
court's failure to grant him a theory-of-the-defense instruction,
Kanodia's challenge still fails. He could have argued that Basu
knew about his disclosures even with the district court's
instructions.
V. New Trial Motion
Kanodia's strongest contention is that the district
court erred in denying his motion for a new trial. Our deferential
standard of review compels us to affirm.
A. Standard of Review
We review a district court's denial of a Rule 33 motion
for a new trial on the basis of newly discovered evidence for
manifest abuse of discretion. United States v. Turner, 501 F.3d
59, 73 (1st Cir. 2007). We will order a new trial on the basis of
newly discovered evidence only if:
(i) the evidence upon which the defendant relies was unknown or unavailable to him at the time of trial; (ii) the failure to bring the evidence forward at trial was not occasioned by a lack of diligence on the defendant's part; (iii) the evidence is material (as opposed to being merely cumulative or impeaching); and (iv) the evidence is such that its introduction would probably result in an acquittal upon a retrial of the case.
United States v. Maldonado-Rivera, 489 F.3d 60, 66 (1st Cir. 2007)
(citing United States v. Wright, 625 F.2d 1017, 1019 (1st Cir.
1980)); Fed. R. Crim. P. 33(a). For our analysis in this case, we
- 24 - group the first two and the latter two elements together. See
Maldonado-Rivera, 489 F.3d at 66.
Here, the district court denied Kanodia's new trial
motion, reasoning that the reports could have been discovered with
due diligence before trial and that the witnesses were cumulative.
B. Due Diligence
Kanodia argues that his proffered media reports and five
witnesses are "newly discovered," and that his failure to introduce
them at trial was not caused by a lack of due diligence. "[D]ue
diligence [is] 'a context-specific concept' generally akin to the
degree of diligence a reasonably prudent person would exercise in
tending to important affairs." United States v. García-Álvarez,
541 F.3d 8, 18 (1st Cir. 2008) (quoting Maldonado-Rivera, 489 F.3d
at 69). Moreover, whether a party exercised due diligence
"[depends] upon the nature of the evidence in question." United
States v. Hernández-Rodríguez, 443 F.3d 138, 144 (1st Cir. 2006).
But "[w]here . . . the newly proffered evidence all pertains to a
matter that the defendant knew would be in issue at his trial, and
the source of that evidence was an obvious one, the district court
ha[s] every right to deem the requirement of due diligence
unsatisfied." Maldonado-Rivera, 489 F.3d at 69.
Here, both the press's purportedly detailed coverage and
the Indian business community's knowledge of the Apollo-Cooper
merger talks constituted Kanodia's key trial defenses. As a
- 25 - consequence, a reasonably prudent person pursuing this line of
defense would have looked into a variety of Indian media sources,
including some non-English language publications. Nevertheless,
Kanodia consciously chose not to research non-English language
publications. That such sources existed would have been obvious
to Kanodia. See García-Álvarez, 541 F.3d at 18. What's more,
three of the fifty-nine articles Kanodia seeks to introduce are in
English, and twenty-one (including all of the English language
articles) were published online prior to the trial. As a result,
Kanodia has not carried his burden of showing that the district
court manifestly abused its discretion in excluding these reports.5
Next, Kanodia claims to have identified five newly
discovered witnesses. One witness, Inderjit Singh, however, was
known to Kanodia before trial, and we therefore decline to consider
his affidavit. Kanodia had met Singh in April 2013 and had general
knowledge of his potential testimony. Kanodia insists that he
omitted Singh from his witness list because he was unavailable.
Singh told Kanodia's private investigator that he had symptoms of
an undiagnosed heart problem in "late September 2016." Yet he was
not hospitalized until October 12, 2016, and Kanodia had already
filed his witness list on September 19, 2016. Moreover, Kanodia
did not depose Singh. This chronology and the concomitant failure
5 In any event, the newly proffered articles do not disclose the detailed information that Kanodia obtained from Basu.
- 26 - to take steps to preserve Singh's testimony means the district
court did not abuse its discretion in finding that Singh did not
qualify as a newly discovered witness.
C. Materiality
That leaves us to consider the other four proposed new
witnesses, Jamaluddin Ahmed, Raji George, Sanjay Kumar, and Vivek
Singh. The government argues that the district court permissibly
found these witnesses provide cumulative, not material, evidence.
We agree. Because "the district court 'has a special sense of the
ebb and flow of the . . . trial[,]' . . . . we afford substantial
deference to the district court's views regarding the likely impact
of belatedly disclosed evidence." United States v. Peake, 874
F.3d 65, 70 (1st Cir. 2017) (first alteration in original) (citing
United States v. Mathur, 624 F.3d 498, 504 (1st Cir. 2010)).
These four witnesses' affidavits purport to fill a gap
in Kanodia's trial defense: although Kanodia showed that Basu had
been loose-lipped about her work on Apollo's acquisition of Cooper,
he failed to show that she had disclosed the deal's price and the
announcement date to other outsiders. Three new witnesses, George,
Kumar, and Vivek Singh, would testify that Basu told them the deal
price and the announcement month. Kumar also would testify that
many in the New Delhi business community knew the deal price and
announcement months in advance.
- 27 - In light of the deferential standard of review, however,
we must credit the many conceivable reasons supporting the district
court's holding. First, Jamaluddin Ahmed, a journalist, does not
assert in his affidavit that he spoke to Basu and instead only
repeats rumors that he heard. The district court could have
determined that testimony as to unsourced gossip was
insufficiently reliable to affect the verdict. See United States
v. Contorinis, 692 F.3d 136, 144 (2d Cir. 2012) (positing that
confirmation of information by a corporate insider may be material
because "[r]umors or press reports about the transaction may be
circulating but are difficult to evaluate because their source may
be unknown"). Additionally, such testimony would be cumulative
because of the many published news articles that Kanodia introduced
at his defense at trial. Accordingly, the district court did not
manifestly abuse its discretion in ruling that Ahmed's testimony
was cumulative.
Second, George's affidavit indicates that he did not
speak with Basu in close temporal proximity to the May and June
trades for which the jury convicted Kanodia. He claims to have
spoken to Basu in April, months before the deal would be announced.
Basu's earlier disclosure would have lacked the certainty of
Kanodia's tips in May and June. See Basic, 485 U.S. at 238-41
(reasoning that the more certain it is that a merger will occur,
- 28 - the more likely it is that information about a proposed merger is
material).
That leaves Kumar's and Vivek Singh's proposed
testimony. Kumar's affidavit states that he met Basu "around the
first week of June 2013 . . . [w]here she stated that . . . Apollo
Tyre is buying Cooper Tire of USA and the deal is valued around
2.5 billion USD and will close very shortly." Vivek Singh avers
in his affidavit that he also met Basu in "early June 2013" and
that she told him that negotiations for Apollo to purchase Cooper
for $2.5 billion were "in advance state and the deal will be
through within few weeks [sic]."
The district court did not manifestly abuse its
discretion in denying the new trial motion based on these two new
witnesses. Kumar qualifies all of his proposed testimony regarding
the key details ("around 2.5 billion USD" and "very shortly"), and
Vivek Singh's testimony is similarly vague as to the timing
("advance state").
Further, if these details were made as public as the
affidavits claim, the opportunity to so profitably trade on the
widely known information would not have existed. See Halliburton
Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 272 (2014)
("[M]arket professionals generally consider most publicly
announced material statements about companies, thereby affecting
stock market prices." (quoting Basic, 485 U.S. at 246 n.24)) If
- 29 - the information discussed in the affidavits were public (even if
only public in India), Cooper's share price would have reflected
this information. Yet it did not -- as Kanodia admits, the price
"remained relatively stable" for the first six months of 2013 --
so Watson was able to place highly profitable trades even on the
day before the deal's announcement. This stability obtained even
amidst rumors dating back to late 2012 that Apollo might buy
Cooper. The fact that Basu bragged about her role to others was
a fact already in evidence and was not a basis for a new trial.
The district court did not manifestly abuse its discretion in
denying Kanodia's motion for a new trial.
VI. Conclusion
For the foregoing reasons, we AFFIRM Kanodia's
convictions and the denial of his new trial motion.
- 30 -