## Facts

- Edward J. Kosinski, a cardiologist, served as principal investigator for a Regado Biosciences clinical trial of an anti-clotting drug and was responsible for patient recruitment, monitoring, and reporting.
- Regado paid Kosinski about $80,000 for his role; he signed agreements requiring confidentiality, conflict-of-interest compliance, and disclosure if his Regado holdings exceeded $50,000.
- Kosinski, an experienced trader with a large portfolio, secretly accumulated about $250,000 in Regado stock without making the required disclosure.
- After receiving nonpublic information that the trial would be suspended for safety concerns, Kosinski sold his Regado stock before public disclosure, avoiding an estimated $160,000 loss.
- After later learning nonpublicly of a trial patient’s death and an indefinite suspension, Kosinski bought put options and made a net profit of about $3,300 after Regado publicly terminated the trial.
- Kosinski told the FBI his trades were motivated by “greed and stupidity” and that he felt bad about making them at the time.

## Issues

1. Whether a clinical-trial principal investigator owed a duty of trust and confidence to the trial sponsor such that trading on trial-related material nonpublic information constituted deceptive conduct under the misappropriation theory of § 10(b) and Rule 10b-5.
2. Whether the evidence was sufficient to prove beyond a reasonable doubt that Kosinski knowingly and willfully engaged in insider trading.
3. Whether alleged errors in jury instructions and evidentiary rulings required reversal.

## Decision

- The Second Circuit affirmed Kosinski’s convictions and sentence.
- The court held that Kosinski owed a duty to the source of the information and breached that duty by trading on confidential trial information and concealing his prohibited level of holdings.
- The court found the information about trial suspension, a patient death, and termination to be material and nonpublic when Kosinski traded.
- The court held the evidence supported scienter and willfulness, including Kosinski’s agreements, concealment, timing of trades, sophistication, and admissions.
- The court found no reversible error in the jury instructions or the challenged evidentiary rulings; any arguable deficiencies were harmless.

## Legal Principles

- Under the misappropriation theory, insider-trading liability may attach when a person trades on confidential information in breach of a duty of trust and confidence owed to the information’s source.
- Contractual confidentiality and conflict-of-interest provisions, combined with the parties’ relationship, can establish the requisite duty for § 10(b) and Rule 10b-5.
- Material nonpublic information includes significant negative clinical-trial safety developments likely to affect a reasonable investor’s assessment of a public company.
- Willfulness and scienter may be inferred from circumstantial evidence such as trading sophistication, concealment of conflicts, rapid trading after receiving confidential information, and admissions reflecting knowledge of wrongdoing.
- Convictions will be upheld where jury instructions, viewed as a whole, correctly state the law and any evidentiary or instructional error does not affect substantial rights.

## Conclusion

The Second Circuit held that a clinical-trial principal investigator who receives confidential safety information can owe a duty to the sponsoring company and commits securities fraud by willfully trading on that material nonpublic information in breach of contractual and trust-based obligations.


United States v. Kosinski, 976 F.3d 135 (2d Cir. 2020)