Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

United States v. Blaszczak

United States Court of Appeals, Second Circuit

December 30, 2019

UNITED STATES OF AMERICA, Appellee,
v.
DAVID BLASZCZAK, THEODORE HUBER, ROBERT OLAN, CHRISTOPHER WORRALL, Defendants-Appellants.

          Argued: November 21, 2019

         Defendants David Blaszczak, Theodore Huber, Robert Olan, and Christopher Worrall appeal from judgments of conviction following a jury trial before the United States District Court for the Southern District of New York (Kaplan, Judge) for wire fraud, Title 18 securities fraud, conversion of U.S. property, and conspiracy, arising from the misappropriation of confidential information from the Centers for Medicare & Medicaid Services. On appeal, Defendants argue that the evidence at trial was insufficient in various respects, the district court committed instructional and evidentiary errors, and there was prejudicial misjoinder for two counts in which Blaszczak alone was charged. We reject each of these challenges. In doing so, we hold, inter alia, that (1) confidential government information may constitute "property" for purposes of the wire fraud and Title 18 securities fraud statutes, and (2) the "personal-benefit" test announced in Dirks v. SEC, 463 U.S. 646 (1983), does not apply to those Title 18 fraud statutes. Because we also discern no prejudicial error with respect to the other issues presented on appeal, we AFFIRM the judgments of the district court.

          SARAH K. EDDY, Assistant United States Attorney (Ian McGinley, Joshua A. Naftalis, Won S. Shin, Assistant United States Attorneys, on the brief), for Geoffrey S. Berman, United States Attorney for the Southern District of New York, New York, NY, for Appellee United States of America.

          DONALD B. VERILLI, JR. (Elaine J. Goldenberg, Jonathan S. Meltzer, on the brief), Munger, Tolles & Olson LLP, Washington, D.C., David Esseks, Eugene Ingoglia, Rachel Agress, Alexander Bussey, on the brief, Allen & Overy LLP, New York, NY, for Appellant Robert Olan.

          ALEXANDRA A.E. SHAPIRO (Eric S. Onley, on the brief), Shapiro Arato Bach LLP, New York, NY, Dani R. James, on the brief, Kramer Levin Naftalis & Frankel, LLP, New York, NY, for Appellant Theodore Huber.

          COLLEEN P. CASSIDY, Federal Defenders of New York, Inc., New York, NY, for Appellant David Blaszczak.

          DANIEL M. SULLIVAN (James M. McGuire, on the brief), Holwell Shuster & Goldberg LLP, New York, NY, Stephen Fishbein, John A. Nathanson, on the brief, Shearman & Sterling LLP, New York, NY, for Appellant Christopher Worrall.

          Peter Neiman, Wilmer Cutler Pickering Hale and Dore LLP, New York, NY, Lindsay A. Lewis, Joshua L. Dratel, P.C., New York, NY, for Amicus Curiae National Association of Criminal Defense Lawyers.

          Kendall Turner, O'Melveny & Myers LLP, Washington, D.C., Anton Metlitsky, O'Melveny & Myers, LLP, New York, NY, for Amici Curiae Law Professors Adam C. Pritchard, Matthew C. Turk, Andrew N. Vollmer, Karen Woody.

          Before: Kearse, Droney, and Sullivan, Circuit Judges.

          RICHARD J. SULLIVAN, CIRCUIT JUDGE

         These consolidated appeals require us to consider whether the federal wire fraud, securities fraud, and conversion statutes, codified at 18 U.S.C. §§ 1343, 1348, and 641, respectively, reach misappropriation of a government agency's confidential nonpublic information relating to its contemplated rules. Defendants David Blaszczak, Theodore Huber, Robert Olan, and Christopher Worrall were charged with violating these statutes - and with engaging in securities fraud in violation of Section 10(b) of the Securities and Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5 ("Title 15 securities fraud") - by misappropriating confidential nonpublic information from the Centers for Medicare & Medicaid Services ("CMS"). The indictment principally alleged that CMS employees, including Worrall, disclosed the agency's confidential information to Blaszczak, a "political intelligence" consultant for hedge funds, who in turn tipped the information to Huber and Olan, employees of the healthcare-focused hedge fund Deerfield Management Company, L.P. ("Deerfield"), which traded on it. After a one-month trial before the United States District Court for the Southern District of New York (Kaplan, J.), a jury found Defendants guilty of wire fraud, conversion, and, with the exception of Worrall, Title 18 securities fraud and conspiracy. The jury acquitted Defendants on all counts alleging Title 15 securities fraud.

         Defendants now challenge their convictions on various grounds. For the reasons set forth below, we reject these challenges. In doing so, we hold, inter alia, that (1) confidential government information such as the CMS information at issue here may constitute "property" in the hands of the government for purposes of the wire fraud and Title 18 securities fraud statutes, and (2) the "personal-benefit" test established in Dirks v. SEC, 463 U.S. 646 (1983), does not apply to these Title 18 fraud statutes. Because we also discern no prejudicial error with respect to the remaining issues raised on appeal, we affirm the judgments of the district court.

         I. Background

         A. Facts

         The jury returned guilty verdicts on counts charging two insider-trading schemes: (1) a scheme relating to Deerfield that involved all defendants to varying degrees, and (2) a scheme relating to another hedge fund investment manager, Visium Asset Management, L.P. ("Visium"), that involved Blaszczak only. We recite the facts pertaining to each of these schemes in turn, construing the evidence at trial underlying the counts of conviction in the light most favorable to the prosecution. See United States v. Kirk Tang Yuk, 885 F.3d 57, 65 (2d Cir. 2018).

         1. The Deerfield Scheme

         At various times between 2009 and 2014, Olan, Huber, and fellow Deerfield partner Jordan Fogel - a cooperating witness who pleaded guilty and testified at trial - approached Blaszczak for the purpose of obtaining so-called "predecisional" information concerning CMS's contemplated rules and regulations. The three Deerfield partners knew that Blaszczak, who had worked at CMS before becoming a consultant for hedge funds, enjoyed unique access to the agency's predecisional information through his inside sources at the agency. Because other consultants did not have access to Blaszczak's sources, the Deerfield partners counted him as a particularly lucrative fount of illegal market "edge." App'x at 567, 606.

         This illegal market edge first paid off for the three Deerfield partners in July 2009, after Blaszczak passed them nonpublic CMS information concerning both the timing and substance of an upcoming proposed CMS rule change that would reduce the reimbursement rate for certain radiation oncology treatments. The Deerfield partners sought to maximize this market edge by trading while "the information wasn't known to others, and . . . wasn't public." Id. at 593. In late June 2009, Olan, Huber, and Fogel directed Deerfield to enter orders shorting approximately $33 million worth of stock in radiation-device manufacturer Varian Medical Systems ("Varian"), a company that would be hurt by CMS's proposed rule. Blaszczak's information was consistent with the proposed rule that CMS ultimately announced on July 1, 2009, and as a result of the Varian trade, Deerfield made $2.76 million in profits.

         Deerfield again traded on confidential CMS information obtained from Blaszczak in 2012. This time, Blaszczak obtained the predecisional information at issue from Worrall, a CMS employee who had previously worked with Blaszczak at the agency and remained friends with him after Blaszczak left CMS to become a hedge fund consultant. Blaszczak met Worrall at CMS's headquarters in Maryland on May 8, 2012; the following day, Blaszczak emailed Fogel to set up a phone call so that he could update him on one of Fogel's "favorite topics." Id. at 2439. On the call, Blaszczak provided Fogel with predecisional CMS information about additional radiation oncology reimbursement rate changes. Fogel, in turn, shared this information with Huber and Olan, and together the three of them relied on it - in combination with other confidential CMS information that Blaszczak passed them over the next few weeks - in recommending that Deerfield short millions of dollars in the shares of companies that would be hurt by the reimbursement changes. Deerfield earned profits of $2.73 million from trades relating to this radiation oncology rule, which was publicly announced on July 6, 2012.

         In February 2013, shortly after Fogel moved to a different group within Deerfield, he reached out to Blaszczak in the hopes of "re-ignit[ing] the Blaszczak- Fogel money printing machine." Supp. App'x at 6. As Fogel testified at trial, the "Blaszczak-Fogel money printing machine" meant that "Blaszczak had a long history of providing [Fogel] and [his] teammates nonpublic information that [they] could trade on, and it was a great asset to get edge for investments." App'x at 581.

         Fogel did not have to wait long for the machine to reignite. In June 2013, Blaszczak told Fogel that he expected CMS to propose cutting the reimbursement rate for end-stage renal disease ("ESRD") treatments by 12 percent. Although Blaszczak did not reveal the source of his information to Fogel, the prediction was so specific - and so different from the market consensus - that Fogel believed it came "from a credible source inside of CMS." Id. at 582. Still, Fogel remained anxious about the outlier status of Blaszczak's prediction and continued to check in with him about his level of certainty. On June 25, 2013, less than a week before CMS announced the ESRD rule, Blaszczak told Fogel that there was "[n]o change in [his] numbers" and that he was "pretty confident" in his information. Id. at 2024. Fogel again took this to mean that Blaszczak obtained the information from a reliable inside source, and further inferred that the public announcement of the proposed rate cut (the timing of which was also nonpublic) was around the corner and thus less likely to change. On the basis of this confidential nonpublic information, Fogel directed Deerfield to enter orders shorting stock in Fresenius Medical Care, a public company that would be hurt by the reimbursement rate cuts. CMS publicly announced the 12 percent rate cut on July 1, 2013, and Deerfield earned approximately $860, 000 in profits from the trade.

         Blaszczak continued to provide Fogel with predecisional CMS information in advance of CMS's announcement of the final ESRD rule on November 22, 2013. In particular, Blaszczak informed Fogel that the final ESRD rule would keep the 12 percent rate cut but would be phased in over three to four years. Based on that information, Fogel recommended that Deerfield enter orders to short stock in Fresenius and DaVita Healthcare Partners Inc. Deerfield did so, earning profits of approximately $791, 000. Immediately after CMS announced the final ESRD rule, Fogel emailed his colleagues at Deerfield to praise Blaszczak for his ESRD reimbursement predictions: "I told u guys blazcack [sic] is the man. . . . [H]e has crushed it on these two rules both times round." Supp. App'x at 10.

         2. The Visium Scheme

         Around the same time that Blaszczak was tipping confidential CMS information to his contacts at Deerfield, he also provided similar information to Christopher Plaford, a portfolio manager at the hedge fund Visium. After subsequently pleading guilty pursuant to a cooperation agreement, Plaford testified that he used Blaszczak as a political-intelligence consultant from around 2010 to 2013, during which time Blaszczak would provide him with both public and nonpublic information concerning the healthcare industry. Plaford, like the Deerfield partners, especially valued Blaszczak's nonpublic CMS information due to the market edge it gave him. Indeed, Plaford considered Blaszczak's CMS information to be "much more accurate" than the information provided by other consultants, since it came "directly from the horse's mouth," meaning Blaszczak's friends and former colleagues at CMS. App'x at 750-51.

         In May 2013, for example, Blaszczak tipped Plaford that he expected CMS to propose cutting the reimbursement rate for home healthcare coverage by between three and three-and-a-half percent per year between 2014 and 2017. In the ensuing weeks, Plaford arranged phone calls with Blaszczak to discuss the sources of his information and thus his level of certainty, an issue that Plaford did not want to discuss over email "because it was potentially incriminating." Id. at 752. On the phone call, Blaszczak told Plaford that he had a "high conviction" that his information was accurate because he was "interacting directly with his counterparties in CMS [who] were working on the rule, and they were telling him . . . [what] the cut would be." Id. Based on Blaszczak's information, Plaford directed Visium to maintain its short positions for Amedisys Inc. and Gentiva Health Services Inc., and to buy put-options in those companies. Following CMS's June 27, 2013 announcement of the proposed home healthcare rule, which included a three-and-a-half percent annual rate cut consistent with Blaszczak's information, Visium earned approximately $330, 000 in trading profits.

         B. Procedural History

         On March 5, 2018, the government filed an eighteen-count superseding indictment in the United States District Court for the Southern District of New York setting forth allegations relating to the Deerfield scheme (Counts One through Sixteen) and Visium scheme (Counts Seventeen and Eighteen). Counts One and Two charged Defendants with participating in conspiracies centering on the misappropriation of confidential CMS information between 2009 and 2014. In Counts Three through Ten, the indictment charged Defendants with conversion of U.S. property (Count Three), Title 15 securities fraud (Counts Four through Eight), wire fraud (Count Nine), and Title 18 securities fraud (Count Ten), relating to the misappropriation of confidential CMS information that pertained to the July 2012 proposed radiation oncology rule. Counts Eleven and Twelve charged Blaszczak and Worrall with conversion of U.S. property (Count Eleven) and wire fraud (Count Twelve) for allegedly misappropriating confidential CMS information relating to a company called NxStage Medical Inc. The remaining four Deerfield-related counts charged Blaszczak and Worrall with conversion of U.S. property (Count Thirteen), Title 15 securities fraud (Count Fourteen), wire fraud (Count Fifteen), and Title 18 securities fraud (Count Sixteen), based on the misappropriation of confidential CMS information concerning the 2013 proposed and final ESRD rules. Counts Seventeen and Eighteen charged Blaszczak alone with conspiracy and conversion of U.S. property, respectively, for providing confidential CMS information to Plaford as part of the Visium scheme.

         On April 2, 2018, the case proceeded to a jury trial before Judge Kaplan. The parties rested their cases three weeks later, on April 23, 2018, and after summations, the district court charged the jury.

         In particular, the district court instructed the jury pursuant to Dirks that, (1) in order to convict Worrall of Title 15 securities fraud, it needed to find that he tipped confidential CMS information in exchange for a "personal benefit;" (2) in order to convict Blaszczak of Title 15 securities fraud, it additionally needed to find that he knew that Worrall disclosed the information in exchange for a personal benefit; and (3) in order to convict Huber or Olan of Title 15 securities fraud, it needed to find that Huber or Olan knew that a CMS insider tipped the information in exchange for a personal benefit. App'x at 1042-43. The district court, however, refused to give Dirks-style instructions on the wire fraud and Title 18 securities fraud counts. The district court instead instructed the jury that wire fraud "includes the act of embezzlement, which is . . . the fraudulent appropriation to one's own use of the money or property entrusted to one's care by someone else." Id. at 1044-45; see Carpenter v. United States, 484 U.S. 19, 27 (1987). The district court similarly instructed the jury, for the Title 18 securities fraud counts, that it could find the existence of a scheme to defraud if a defendant "participated in a scheme to embezzle or convert confidential information from CMS by wrongfully taking that information and transferring it to his own use or the use of someone else." App'x at 1045. For both Title 18 fraud offenses, the district court further instructed the jury that it could only convict if it found that the defendant it was considering knowingly and willfully participated in the fraudulent scheme.

         On May 3, 2018, after four days of deliberations, the jury returned a split verdict. The jury acquitted all defendants on the Title 15 securities fraud counts; Blaszczak and Worrall on the offenses charged in Counts Eleven and Twelve relating to the NxStage information; and Worrall on the conspiracies charged in Counts One and Two and the substantive offenses charged in Counts Thirteen through Sixteen. The jury nevertheless found all defendants guilty of the conversion and wire fraud offenses charged in Counts Three and Nine, respectively; all defendants but Worrall guilty of the conspiracy offenses charged in Counts One and Two as well as Title 18 securities fraud as charged in Count Ten; and Blaszczak alone guilty of the offenses charged in Counts Thirteen and Fifteen through Eighteen.

         On September 13, 2018, the district court denied from the bench Defendants' post-trial motions for a new trial and/or judgment of acquittal and proceeded to sentencing. The district court sentenced Blaszczak to twelve months and one day of imprisonment, Worrall to twenty months' imprisonment, and Huber and Olan each to thirty-six months' imprisonment and fines of $1, 250, 000. The district court also ordered Blaszczak to forfeit $727, 500, Huber to forfeit $87, 078, and Olan to forfeit $98, 244, and ordered joint and several restitution in the amount of $1, 644.26 against all defendants to cover the costs that CMS expended on witnesses' travel in connection with the criminal investigation and trial. Finally, the district court granted all defendants bail pending appeal on the ground that the forthcoming appeal would present novel and substantial questions. See United States v. Randell, 761 F.2d 122, 125 (2d Cir. 1985). Defendants timely appealed.

         II. Jurisdiction and Standard of Review

         We have jurisdiction pursuant to 28 U.S.C. § 1291. We review de novo questions of statutory interpretation, challenges to the district court's jury instructions, and the propriety of joinder. See United States v. Gayle, 342 F.3d 89, 91 (2d Cir. 2003); United States v. Sabhnani, 599 F.3d 215, 237 (2d Cir. 2010); United States v. Shellef, 507 F.3d 82, 96 (2d Cir. 2007). We also review de novo the sufficiency of the evidence, Sabhnani, 599 F.3d at 241, recognizing, of course, that a defendant raising such a challenge "bears a heavy burden because a reviewing court must consider the evidence 'in the light most favorable to the prosecution' and uphold the conviction if 'any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt, '" United States v. Aguilar, 585 F.3d 652, 656 (2d Cir. 2009) (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)); accord United States v. Harvey, 746 F.3d 87, 89 (2d Cir. 2014). The district court's evidentiary rulings are reviewed for abuse of discretion. See United States v. Nektalov, 461 F.3d 309, 318 (2d Cir. 2006).

         III. Discussion

         Defendants challenge their convictions on several grounds. They argue that (1) the confidential CMS information at issue is not "property" in the hands of CMS for purposes of the wire fraud and Title 18 securities fraud statutes; (2) the district court erred by refusing to instruct the jury on the Dirks personal-benefit test as to the Title 18 fraud counts; (3) Defendants' convictions for converting U.S. property were infected by a series of legal and factual errors; (4) the evidence at trial was insufficient on all counts; (5) Counts Seventeen and Eighteen, charging Blaszczak alone in the Visium ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.