[00:00:17] Speaker 04:
We'll hear argument next in United States versus Shana, case 23-2989.

[00:00:23] Speaker 04:
Let's let council have a minute to get set up.

[00:00:39] Speaker 04:
Okay, Ms.

[00:00:39] Speaker 04:
Spiro, good morning.

[00:00:41] Speaker 00:
Good morning, Your Honors, and may it please the court, Leah Spiro for defendant Mark Sheena.

[00:00:45] Speaker 00:
I'll watch the clock and try and reserve five minutes for a rebuttal.

[00:00:49] Speaker 00:
Throughout this prosecution and appeal, the government has suggested several different acts and schemes that Mark Sheena and others allegedly committed, but the jury was asked to find guilt on much more specific grounds, and this appeal centers on what the jury was actually asked to find.

[00:01:09] Speaker 00:
I plan to focus on three issues.

[00:01:11] Speaker 00:
First, the marketing influence kickback theory that was just discussed in the SNG case and was the theory presented to the jury in this case for the ECRA counts.

[00:01:22] Speaker 00:
Second, the $21 million securities fraud restitution order that was based on scheme liability, although the jury never found a scheme as an element of the securities fraud offenses.

[00:01:37] Speaker 00:
And third, the prejudicial error in the knowingly instruction for counts one through six, which misinformed the jury about the knowledge that it had to find.

[00:01:48] Speaker 00:
Turning to the marketing kickback theory, I'll pick up on some of the points that were raised in SNG first.

[00:01:54] Speaker 00:
And I'll start with the indirectly language.

[00:01:58] Speaker 00:
That language describes the mode of payment when someone serves as a conduit between the payor and the payee.

[00:02:08] Speaker 00:
It does not modify the word inducement.

[00:02:11] Speaker 00:
And so its placement in the statute is very important here.

[00:02:15] Speaker 00:
There is a copy of the ECRA statute at opening brief page 80, and it shows that the word indirectly appears in a clause that refers to remuneration.

[00:02:26] Speaker 00:
And that clause talks about several different ways that the remuneration can be paid.

[00:02:32] Speaker 00:
It can be paid as a kickback bribe or rebate.

[00:02:36] Speaker 00:
It can be paid directly or indirectly.

[00:02:39] Speaker 00:
It can be paid overtly or covertly.

[00:02:42] Speaker 00:
And it could be paid in cash or in kind.

[00:02:45] Speaker 00:
And then there's a clause about what the payment is made for.

[00:02:49] Speaker 00:
It's made either in return for referring a patient or to induce a referral.

[00:02:55] Speaker 00:
And so based on its placement in the statute indirectly

[00:02:58] Speaker 00:
simply does not modify what it means to induce someone.

[00:03:05] Speaker 00:
And then I'll talk about the legislative history.

[00:03:07] Speaker 00:
SNG's counsel has leaned heavily on the legislative history and Congress's supposed intent to cover regular traditional marketing, but there is no mention whatsoever of this concern about marketing in the legislative history, and the Supreme Court has been very clear that if courts are going to rely on legislative history,

[00:03:28] Speaker 00:
then it has to be crystal clear that Congress intended to address that ill in the statute.

[00:03:36] Speaker 04:
So can I ask you, is Shana the type of person who can be covered by this, even though he's not actually making the referrals?

[00:03:47] Speaker 00:
It would depend on his conduct.

[00:03:49] Speaker 00:
And I think you stated it well, it would depend on whether there was some level of undue

[00:03:55] Speaker 00:
influence in the process.

[00:03:56] Speaker 00:
And I think that the Fifth Circuit's Marchetti decision, which is its last decision in the trio of decisions, does the best job in teasing out what it would mean for a marketer to unduly influence.

[00:04:11] Speaker 00:
In the Marketti case, the marketer had two different primary activities.

[00:04:17] Speaker 00:
One was to do the type of traditional marketing that array its marketers did in this case.

[00:04:23] Speaker 00:
They pitched doctors on using the lab's products.

[00:04:27] Speaker 00:
And the court said that even though the marketer had close, friendly relationships with the doctors to whom he marketed, that was traditional marketing, that was not undue influence, that was not inducement.

[00:04:38] Speaker 00:
But then the court drew a distinction because in that case the marketer also worked with an intermediate warehouse where samples would be sent and then they would be routed to one of two labs.

[00:04:52] Speaker 00:
And the marketer came up with a scheme where he asked the second lab to use the same equipment as the first lab so that he could reroute samples from one lab to the other.

[00:05:03] Speaker 00:
And so there he really was making a referral decision because he was, without the knowledge of the doctor, he was routing the samples from the lab that the doctor had picked to a different lab.

[00:05:16] Speaker 00:
And so that was clearly an act of undue influence.

[00:05:21] Speaker 00:
It was an actual making of a referral.

[00:05:24] Speaker 02:
And I think that- Council, if I may, what do you make then of the allegations that the marketers in this case targeted naive doctors?

[00:05:33] Speaker 02:
and, you know, to help them kind of guide them on these decisions.

[00:05:39] Speaker 02:
And the tests, as alleged, were unnecessary.

[00:05:42] Speaker 02:
There was more than needed, and they probably weren't the best tests to have done on these patients.

[00:05:50] Speaker 02:
But, you know, the record tells us several times that the marketers specifically sought out naive doctors.

[00:06:00] Speaker 00:
I think that is really a fraud problem or a false advertising problem.

[00:06:06] Speaker 00:
That's a problem with the advertising itself.

[00:06:09] Speaker 00:
and not a kickback theory.

[00:06:11] Speaker 00:
And so if you take a very classic kickback theory, if the lab was going to the doctor and making false representations about the test, which is what the government has alleged happened here, then that would really be, again, more of a fraud or a false advertising problem.

[00:06:29] Speaker 00:
That would not be a kickback problem.

[00:06:31] Speaker 00:
So the idea that Array It is paying marketers and then marketers are using some sort of

[00:06:39] Speaker 00:
you know, less than perfect advert or marketing scheme, and they're trying to pitch it on doctors who might be more susceptible to using the test, that's not a kickback problem.

[00:06:53] Speaker 00:
That is not within the paradigmatic situation.

[00:06:56] Speaker 00:
And the U.S.

[00:06:58] Speaker 00:
So in your mind, that's not undue influence?

[00:07:00] Speaker 00:
That's not undue influence.

[00:07:03] Speaker 00:
And I think it has to.

[00:07:04] Speaker 04:
Why not, though?

[00:07:05] Speaker 04:
I mean, it seems, wouldn't it at least be a jury question, then, that if a lab hires a marketer to go to a doctor and misrepresent the lab's services and the need for those services, and the doctor hearing this says, okay, I'll go ahead and refer that, and the marketer is paid on a commission-based payment system, why wouldn't that at least be a jury question as to whether it's induced a referral?

[00:07:33] Speaker 00:
I think the problem is that that gets away from the remuneration.

[00:07:38] Speaker 00:
And in a kickback scenario, it's the payment.

[00:07:41] Speaker 00:
It's not whatever pitch you're making to the person who you're trying to get the referral from.

[00:07:49] Speaker 00:
So when you think of a kickback, this court has made clear that the understanding of a kickback or bribe is payment.

[00:07:56] Speaker 00:
to corrupt the judgment of the person who's making the referral and they're getting the payment in exchange for making the referral.

[00:08:05] Speaker 00:
And so now instead of the payment being the inducement for the referral, it is the pitch to the doctor that is misleading them and that is inducing the referral.

[00:08:19] Speaker 00:
So I think this gets very,

[00:08:20] Speaker 00:
tangential because again, a rate is paying a marketer.

[00:08:24] Speaker 00:
A marketer is making a false pitch or a misleading pitch or is choosing doctors who don't know as much.

[00:08:32] Speaker 00:
And the doctor isn't getting the payment.

[00:08:34] Speaker 00:
That's not what's encouraging them.

[00:08:36] Speaker 00:
The doctor is just being misled because they don't know as much about the market.

[00:08:41] Speaker 02:
So in your scenario then, is my understanding correct that it's only an undue influence if the marketer is actually paying the doctor to make these, send it to the lab?

[00:08:54] Speaker 00:
I don't think the payment has to be made

[00:09:00] Speaker 00:
necessarily by the marketer but what needs to happen is that the marketer is in some way the remuneration is influencing the transaction more directly because again this is not a statute where indirect influence becomes a kickback

[00:09:25] Speaker 00:
I would turn, one example is the Shoemaker case from the Fifth Circuit where payments were going to a board chair of a hospital.

[00:09:35] Speaker 00:
The board chair, by virtue of their position, convinced the administration to make the referrals because they were in a position of power over the administration, and so that was a kickback.

[00:09:48] Speaker 00:
And there again, that's a position of power that they're able to exercise.

[00:09:53] Speaker 00:
I think in the example where the marketer is simply giving misinformation to a doctor, that's just not what we think of as a kickback.

[00:10:04] Speaker 00:
And again, if the lab was just giving misinformation to the doctor and the doctor was making the referral, this wouldn't fall under ECRA.

[00:10:13] Speaker 00:
One thing to keep in mind is that this is a criminal statute and although it appears in the SNG case, which is a civil case,

[00:10:21] Speaker 00:
the statute has to be read under the criminal statutory interpretation principles, including that it has to be in harmony with the ordinary understanding of a kickback, it has to be read narrowly, and it doesn't turn on the broadest imaginable definition of the component word.

[00:10:38] Speaker 00:
So when we think about the ordinary concept of a kickback, which this Court and all others have defined over and again, it's

[00:10:45] Speaker 00:
the idea that payment is flowing to someone to corrupt their power, their use of the power to steer business or favors to a particular business or person.

[00:10:57] Speaker 00:
And this really has gotten so far afield because it's paying a marketer to successfully market to doctors.

[00:11:06] Speaker 00:
And another problem.

[00:11:08] Speaker 04:
I just want to make sure I understand kind of the

[00:11:11] Speaker 04:
This is a legal challenge, right?

[00:11:12] Speaker 04:
You haven't challenged the sufficiency of the evidence.

[00:11:14] Speaker 04:
There's not really a challenge, I don't think, to any of the jury instructions on this point.

[00:11:18] Speaker 04:
So the argument you're making is essentially a client, your client who's a, if you're bringing in marketers, it doesn't violate ECRA even to have those marketers make misrepresentations to doctors.

[00:11:37] Speaker 04:
That is just, as a matter of law, that does not rise to the level of an ECRA violation.

[00:11:41] Speaker 00:
That's not an ECRA problem.

[00:11:42] Speaker 00:
That's another problem.

[00:11:43] Speaker 00:
He could be, you know, charged with something else, or he could be charged with some other scheme.

[00:11:49] Speaker 00:
And I think that was one of the very broad healthcare fraud scheme theories that the government pursued here.

[00:11:57] Speaker 00:
But it doesn't fall under ECRA.

[00:11:59] Speaker 00:
It's just not a kickback problem.

[00:12:01] Speaker 00:
So certainly I'm not saying that you can hire marketers to mislead doctors.

[00:12:06] Speaker 00:
That's going to be captured by some other law.

[00:12:09] Speaker 00:
But it's not a kickback problem.

[00:12:12] Speaker 00:
And so to your point Judge Bress, this is a distinct legal error.

[00:12:17] Speaker 00:
It's not sufficiency of the evidence.

[00:12:19] Speaker 00:
It's not jury instruction.

[00:12:21] Speaker 00:
It was raised multiple times throughout trial by defense counsel and so clearly it was preserved.

[00:12:28] Speaker 00:
And as the Milheiser case set out, the question on appeal is really was this theory presented to the jury valid?

[00:12:37] Speaker 00:
And if it wasn't, has the government shown beyond a reasonable doubt that the jury

[00:12:43] Speaker 00:
wasn't affected by this theory.

[00:12:45] Speaker 00:
And here that can't be said because this was the theory for ECRA presented to the jury.

[00:12:54] Speaker 00:
Let me turn to the securities fraud restitution order.

[00:12:59] Speaker 00:
The problem with that order is that it's based on a sweeping fraud scheme that was not a necessary element of the jury's verdict.

[00:13:07] Speaker 00:
And this court's case law is very clear that a restitution order must be limited to the losses caused by offense conduct.

[00:13:16] Speaker 00:
And specifically, restitution cannot be based on scheme liability unless a scheme is necessarily found as an element of the underlying offense.

[00:13:27] Speaker 00:
And so here, a scheme isn't an element of a securities fraud offense.

[00:13:32] Speaker 00:
The securities fraud statute 15 USC 78J requires as an element any manipulative or deceptive device or contrivance.

[00:13:43] Speaker 00:
And then 10B5 describes different means of having that type of contrivance.

[00:13:48] Speaker 00:
and it's in the disjunctive.

[00:13:50] Speaker 00:
That can be an individual misstatement, it can be an individual omission, a scheme, or a pattern of conduct.

[00:13:57] Speaker 00:
Those are different means of committing that element of the device or contrivance.

[00:14:02] Speaker 00:
Here, the jury was informed of these four different means in the disjunctive, so it could have found any of them, and the verdict form steered them towards three specific misstatements.

[00:14:15] Speaker 00:
The press release, the tweet, and the email message.

[00:14:18] Speaker 00:
The verdict form says nothing about finding a scheme.

[00:14:22] Speaker 00:
The instructions didn't require the jury to find a scheme.

[00:14:26] Speaker 00:
And so it simply can't be said that there was a scheme as a necessary element of the securities fraud offenses.

[00:14:34] Speaker 00:
And yet the government's restitution order is based on a five-year securities fraud scheme.

[00:14:41] Speaker 04:
So how should it, if you had just a single discreet tweet or email,

[00:14:48] Speaker 04:
What should have been done instead, some sort of market analysis for the stock drop in connection with that with expert testimony?

[00:14:53] Speaker 00:
Exactly.

[00:14:55] Speaker 00:
That's what experts do.

[00:14:55] Speaker 00:
They can pinpoint what sort of loss can be attributed to individual statements.

[00:15:03] Speaker 00:
And then let me touch upon the erroneous instruction for the knowingly element for counts one through six.

[00:15:11] Speaker 00:
Whatever standard of review the court applies because there is a disagreement about which one should apply, the error in the instruction was plain under this court's decision in lieu and the error was prejudicial.

[00:15:24] Speaker 00:
And what makes this case different from most other jury instruction error cases is that the jury indicated its confusion and it was confused about exactly the two instructions that contradicted each other.

[00:15:40] Speaker 00:
And this court's decision in Morris underscores that this court doesn't second guess when a jury indicates that it's confused about the exact instruction that has an error in it.

[00:15:52] Speaker 00:
In Morris, and in this case, the jury asked for clarification on the mistaken instruction and the judge pointed them right back to the mistaken instructions.

[00:16:00] Speaker 00:
And so just as in Morris, even though there were other instructions that could have clarified for the jury what the right rule of law was,

[00:16:10] Speaker 00:
Jurors can't be counted on to arrive at the right rule of law when they are given contradictory instructions and they're not given any indication of which one governs.

[00:16:22] Speaker 00:
And here it was prejudicial because Mr. Sheena's main defense was that he didn't know his actions were unlawful.

[00:16:29] Speaker 00:
He was a scientist, he did not know all of the regulatory compliance issues, and so this mistake went to the heart of his defense.

[00:16:38] Speaker 00:
And so counts one through six must be reversed.

[00:16:42] Speaker 04:
Can I ask you on the ECRA counts, if you were to prevail on those, what does that do to the trial?

[00:16:49] Speaker 04:
Is it your view he would have to be retried

[00:16:52] Speaker 00:
Yes, under a valid theory, if the government has one.

[00:16:56] Speaker 04:
Okay, but your position is the Equa Theory is invalid, so it would essentially drop out, but the sentence is the same, it would appear, based on the healthcare fraud?

[00:17:07] Speaker 00:
That might be right if the court didn't agree about the instruction for counts one through six, but that affects the healthcare fraud counts, so it's our position that the healthcare fraud and the ECRA counts must go because of the jury instruction.

[00:17:19] Speaker 04:
Right, but if the instruction is not plain error, let's assume that for a second, and let's assume you prevail on the ECRA point, then what happens?

[00:17:29] Speaker 04:
What should happen?

[00:17:31] Speaker 00:
I think it should go back for re-sentencing just for the district court to make sure that the sentence is the same with the ECRA counts away, and of course to re-evaluate the restitution.

[00:17:44] Speaker 04:
Okay, but it was not clear to me why it would need to be re-tried altogether.

[00:17:49] Speaker 04:
I'm not sure you're suggesting that anyway.

[00:17:51] Speaker 00:
I'm not.

[00:17:52] Speaker 00:
Okay.

[00:17:52] Speaker 00:
Thank you.

[00:17:53] Speaker 04:
Thank you.

[00:18:04] Speaker 04:
Excuse me.

[00:18:06] Speaker 04:
Good morning.

[00:18:06] Speaker 03:
Good morning.

[00:18:07] Speaker 03:
May it please the Court, Sophia Vickery for the United States.

[00:18:11] Speaker 03:
I'll just proceed in the same order as counsel, unless the Court has a different preference.

[00:18:16] Speaker 03:
And I'd like to start with ECRA just by clarifying the parties' positions, because I think that we may, in the end, be a little bit closer than where we started.

[00:18:25] Speaker 03:
I understood from defense counsel's opening brief that they were appealing a motion to dismiss and arguing that there is a legal bright line.

[00:18:35] Speaker 03:
I'm looking at things like page 8 of the opening brief and I believe it's page 35 on the ECRA argument where the defendant suggests that only physicians who have the power to authorize a referral can receive the kickbacks under the ECRA statute.

[00:18:51] Speaker 03:
Now it seems that the defendant is conceding that it actually depends on the specific conduct in a particular case, which is also the government's position.

[00:19:00] Speaker 03:
The government has the burden to prove beyond a reasonable doubt to the jury that the intent of the kickbacks was to induce a referral.

[00:19:08] Speaker 03:
this case was argued in exactly that way.

[00:19:12] Speaker 03:
And I'm going to point to a few points, places in the closing argument where counsel on both sides presented this argument.

[00:19:20] Speaker 03:
So the government in its closing, for example, I'm looking at 2372 and in the rebuttal 2377, the government argued about why the defendant paid these kickbacks, explaining that they were paid to induce referrals,

[00:19:33] Speaker 03:
that the marketers use these deceptive theories, pointing to testimony about how the deceptive marketing actually caused the referrals to happen.

[00:19:42] Speaker 03:
Defense counsel made the opposite argument.

[00:19:45] Speaker 03:
So page 2441, defense counsel tells the jury, inducement is to actually cause referral of a patient.

[00:19:52] Speaker 03:
and then argued based on the testimony presented in the case that the kickbacks didn't actually cause a referral because the doctors weren't influenced by what the marketers did.

[00:20:03] Speaker 03:
The jury rejected that argument and convicted, and there's plenty of evidence on sufficiency review, which is not the way that this was briefed, to support that finding.

[00:20:14] Speaker 03:
I wanted to kind of go through a few of the theories on the legal argument.

[00:20:21] Speaker 03:
So to begin, there was the definition of induce that was presented for the first time in the reply brief.

[00:20:29] Speaker 03:
I think this court could consider that argument to have been abandoned.

[00:20:33] Speaker 03:
This is the first time in the litigation that that definition was presented.

[00:20:37] Speaker 03:
The parties in the motion practice use the definition this court has used in Hans' letter, both in the defendant and the reply motion and the government motion, which is that the better definition of induce is to move by persuasion or influence.

[00:20:55] Speaker 03:
which is also the definition that I was just reciting that the defense counsel used in closing to the jury.

[00:21:01] Speaker 04:
Is that different than what the Supreme Court talked about in Hanson though?

[00:21:05] Speaker 03:
It is different, and I think that the specialized definition in Hanson just doesn't work with this statute.

[00:21:11] Speaker 03:
So in Hanson, the definition that the Supreme Court talked about was solicitation or facilitation of an offense, which made sense because in Hanson, the statute was talking about inducing illegal reentry.

[00:21:24] Speaker 03:
So the object of induce in Hanson was itself a crime.

[00:21:28] Speaker 03:
Whereas here, what's being induced in ECRA is the referral, but the referral is not a crime.

[00:21:34] Speaker 03:
What's a crime under ECRA is the kickback.

[00:21:38] Speaker 03:
So it doesn't make sense to use that definition in this case.

[00:21:40] Speaker 03:
The better definition is the Hans letter definition that this court has used in the anti-kickback statute context and that's also used in other courts of appeals, for example, some of the Fifth Circuit cases cite that definition.

[00:21:55] Speaker 04:
Is the government's position that this would cover a sort of standard marketing arrangement?

[00:22:00] Speaker 04:
I mean, we heard an argument, which you presumably listened to in S&G, where it seemed that the argument being made was that any time you have a marketer who's involved in doing this kind of marketing and you have a commission-based payment system, that could be suspect.

[00:22:17] Speaker 04:
What's the government's position there?

[00:22:19] Speaker 03:
I don't think that's true.

[00:22:21] Speaker 03:
I think it's very fact-dependent.

[00:22:22] Speaker 03:
A percentage-based payment is not per se unlawful.

[00:22:26] Speaker 03:
So the structure of a contract alone would not be by itself sufficient evidence.

[00:22:32] Speaker 03:
That's a quote from, I believe, Marchetti in the Fifth Circuit.

[00:22:36] Speaker 03:
What the government has to show beyond a reasonable doubt is that the purpose of the kickbacks was, a quid pro quo, was to induce referrals.

[00:22:44] Speaker 03:
It is not to compensate marketing

[00:22:46] Speaker 03:
or advertising or hours worked or other legitimate services that it is in exchange for the referrals.

[00:22:54] Speaker 03:
That's the government's burden and there was sufficient evidence in this case to meet that burden.

[00:23:05] Speaker 03:
If the court has no further questions on the ECRA point, I could move to the sentencing questions.

[00:23:15] Speaker 03:
So in sentencing, there was a discussion about the sort of scope of the offense that was charged with respect to securities fraud, and I wanted to clarify a few points there.

[00:23:28] Speaker 03:
So I'm looking at the indictment, and I would point the court to paragraphs 29 through 32.

[00:23:38] Speaker 03:
It's a subsection called the scheme to defraud.

[00:23:42] Speaker 03:
And it describes how beginning in or around 2015, continuing through in or around 2020, Sheena, together with others, and then there's a lot of subparagraphs there, talks about the tweets, exercising undue influences, the press releases.

[00:23:56] Speaker 03:
The financial statements are coming, wait another minute.

[00:24:00] Speaker 03:
No, now they're not coming.

[00:24:01] Speaker 03:
Now I'm sending emails.

[00:24:04] Speaker 03:
It sort of describes that the evidence that was laid out to the jury, those paragraphs are incorporated into counts seven through nine.

[00:24:14] Speaker 03:
paragraph 59 your contention that there was a scheme alleged that that was charged this is charged it was also argued that way to the jury so I'm looking at the closing argument 2328 in the excerpts of the record

[00:24:31] Speaker 03:
The prosecutor starts off discussing the elements of securities fraud by saying, and I'm quoting, you must find that he engaged in a scheme to defraud investors in array at securities.

[00:24:43] Speaker 03:
That's the way it was argued.

[00:24:44] Speaker 03:
And then she continued on to lay out the other elements and the evidence supporting that scheme.

[00:24:50] Speaker 03:
Council mentioned the jury instructions, and I agree that there is the word or in the jury instructions.

[00:24:57] Speaker 03:
This is the first time that that argument has been made in this litigation.

[00:25:02] Speaker 03:
It was not an objection in the charge conference.

[00:25:05] Speaker 03:
It was not objected to after.

[00:25:08] Speaker 03:
It was not in any of the briefs.

[00:25:10] Speaker 03:
And similarly, any complaints about the verdict form.

[00:25:14] Speaker 03:
Again, this is the first time that that issue has been raised, and I think it would be fair to consider it abandoned, particularly in light of the clarity of the allegations and the argument.

[00:25:27] Speaker 03:
On to the jury instructions.

[00:25:32] Speaker 03:
There was no plain error in these jury instructions.

[00:25:36] Speaker 03:
It would have been impossible for the jury to have convicted Mr. Sheena without also finding that he acted with a bad purpose.

[00:25:44] Speaker 03:
And that's because the willfully instruction was legally correct.

[00:25:49] Speaker 03:
It described that he needed to have acted with a bad purpose.

[00:25:53] Speaker 03:
And in each description of the offenses, in each time that the district court told the jury what elements it had to find, it said that the jury had to find beyond a reasonable doubt that he acted knowingly and willfully.

[00:26:07] Speaker 03:
In order to have found that, the jury would have had to have found that he acted with a bad purpose.

[00:26:14] Speaker 03:
I also disagree with the assertion that the jury was confused.

[00:26:20] Speaker 03:
I don't think there's any evidence of that.

[00:26:22] Speaker 03:
The jury did submit a couple of notes asking questions.

[00:26:28] Speaker 03:
I think what that shows is that this was a complex case and that the jury was being careful.

[00:26:33] Speaker 03:
It was carefully parsing through these different instructions about

[00:26:37] Speaker 03:
distinct aspects of subjective knowledge and in response to those questions the district court referred the jury back to the legally correct definitions of knowingly and willfully without objection from defense counsel and the jury returned a verdict of guilty.

[00:26:57] Speaker 03:
Again, it would have been impossible for them to have done so without finding that Mr. Sheena acted with a bad purpose, and that's particularly clear on plain error review of these instructions.

[00:27:08] Speaker 04:
Can we go back to the restitution?

[00:27:10] Speaker 04:
I just want to make sure I understand the argument you're making.

[00:27:15] Speaker 04:
So you're looking at paragraphs 29 around there in the superseding indictment, which

[00:27:25] Speaker 04:
have I think a reference to a scheme, they call it a scheme to defraud.

[00:27:30] Speaker 04:
If you then go down though to the actual counts, there it lists three dates, three dates with three statements.

[00:27:42] Speaker 04:
And your position is that that essentially is incorporating the allegations from above and what's being alleged here is a scheme from essentially November 2018 to March 2020.

[00:27:53] Speaker 03:
Right, and particularly,

[00:27:55] Speaker 03:
Paragraph 59, which is the first paragraph under the sort of subtitle count seven through nine, specifically incorporates the allegations in those prior paragraphs that's laying out sort of the background facts that were happening.

[00:28:12] Speaker 03:
So yes, the position is that that scheme to defraud section is specifically incorporated into these counts.

[00:28:21] Speaker 03:
This is what was charged.

[00:28:24] Speaker 03:
And as I mentioned, it's also what was argued to the jury and instructed without objection.

[00:28:32] Speaker 01:
So is it your position that you need to charge scheme in order to get restitution award?

[00:28:42] Speaker 01:
In other words, could the restitution award have been given without you specifically alleging a scheme?

[00:28:50] Speaker 03:
I'm not sure you would have to find some connection between the offense conduct that was alleged.

[00:28:55] Speaker 01:
Correct.

[00:28:56] Speaker 01:
I mean, my question is, do you need to plead it in order?

[00:29:00] Speaker 03:
I'm not certain.

[00:29:00] Speaker 03:
In this case, we did.

[00:29:01] Speaker 03:
And so I think that it's more... Well, they disagree.

[00:29:04] Speaker 01:
That's why I'm asking.

[00:29:06] Speaker 03:
So I think if it was a different indictment and it was more limited to only

[00:29:13] Speaker 03:
a smaller date range, then we would have needed perhaps to show more evidence as to why this larger date range was connected specifically to what was pleaded.

[00:29:23] Speaker 03:
So I think in that instance, perhaps a remand would be appropriate to consider whether there was the connection between, I guess, what the defendant is arguing was alleged and what our position.

[00:29:37] Speaker 01:
And what standard of review would you apply to this?

[00:29:41] Speaker 03:
And I just want to be clear about this.

[00:29:43] Speaker 03:
So the clear error would apply to the actual calculation and to whether that is reasonably foreseeable.

[00:29:48] Speaker 03:
To the extent that this court finds a legal error in sort of the scope, then I think that would be de novo.

[00:29:58] Speaker 03:
If the court has no further questions, the government would ask you to affirm.

[00:30:01] Speaker 03:
Thank you.

[00:30:22] Speaker 00:
First, this is not an insufficiency of the evidence argument, and the Choi case we cite points out that this court determines whether the theory presented to the jury was legally valid.

[00:30:35] Speaker 00:
The government proved what it set out to prove, that Array It paid marketers and that marketers pitched Array It's products to doctors.

[00:30:43] Speaker 00:
there's no dispute that that was proven.

[00:30:45] Speaker 00:
The question is, is that actually a valid theory under ECRA?

[00:30:49] Speaker 00:
And that is what this court decides.

[00:30:52] Speaker 00:
And the government has yet to show that the jury relied on any other theory, because that was the only theory presented to them.

[00:31:00] Speaker 00:
In terms of the- I'm sorry, Ms.

[00:31:02] Speaker 04:
Spiro, but so the point, your point is,

[00:31:05] Speaker 04:
Even a theory by which marketers are hired to make false representations to doctors, that does not fall within that.

[00:31:15] Speaker 04:
It may violate some other law, but that's the crux of your position here?

[00:31:20] Speaker 04:
That's correct.

[00:31:22] Speaker 04:
Okay.

[00:31:23] Speaker 04:
And walk me again through why, because it's not tight enough to a referral?

[00:31:29] Speaker 00:
Exactly, and if you cut out, I mean if you think of a kickback and the company arrayed itself made misleading statements to the doctors in order to get them to make the referral, that's clearly not a kickback.

[00:31:44] Speaker 00:
It doesn't become a kickback because a doctor is paying a marketer who does exactly what the allegedly unlawful thing is to make the misstatement to the doctors and then the doctors make the referral.

[00:31:59] Speaker 00:
adding a link in the chain and paying marketers doesn't turn what is misleading into something that's a kickback.

[00:32:06] Speaker 00:
And time and again, the United States Supreme Court has said that the government can't expand kickbacks and bribes past the paradigmatic scenario of paying in order to have the referral made.

[00:32:22] Speaker 01:
So to repeat Judge Press's earlier question, why isn't that a jury question?

[00:32:28] Speaker 01:
I mean, you've argued as though those are the undisputed facts.

[00:32:34] Speaker 01:
Maybe they are and maybe they're not, but it seems to me if you're trying to put together a chain and arguing that there's a break in the chain, that's a jury question.

[00:32:45] Speaker 00:
I don't think so because the question is how broad legally does this statute go?

[00:32:52] Speaker 00:
Does a kickback, as described in that statute, as Congress sought to

[00:32:58] Speaker 00:
prohibit it, does that cover where a company pays the marketer and the marketer misleads the doctor and the doctor makes the referral?

[00:33:06] Speaker 00:
That's a legal question about the scope of the statute.

[00:33:10] Speaker 00:
And turning to the court's question about the phrase inducement and whether you can use the Handluster definition, I don't think it's good law after Hanson, but even in Handluster,

[00:33:22] Speaker 00:
The court said marketers really encourage doctors to make referrals.

[00:33:28] Speaker 00:
They're not inducing.

[00:33:29] Speaker 00:
So even if you used the definition used in hand luster, that still doesn't cover the scenario here.

[00:33:36] Speaker 04:
And then quickly- I want to hear about the restitution too, but-

[00:33:41] Speaker 04:
On the question of if take out the intermediary and if you have a lab that is paying doctors for referrals and in the process lying to doctors about the quality of the medical services or making some other misrepresentation, why would that not be inducing a referral?

[00:34:03] Speaker 00:
Because the remuneration is inducing the referral.

[00:34:07] Speaker 00:
That's what the statute makes clear.

[00:34:09] Speaker 00:
It's not that the lie is inducing the referral.

[00:34:12] Speaker 00:
And so in your scenario, the payment certainly qualifies as a kickback, but throwing the lie in there doesn't mean all of a sudden it comes within the scope of the statute itself or the ordinary understanding of the kickback because the lie is accompanying the payment.

[00:34:33] Speaker 00:
Maybe it's causing

[00:34:35] Speaker 00:
you know, the doctor to make a decision, but that's not the statute itself is talking about remuneration in exchange for the referral.

[00:34:45] Speaker 04:
Okay, you want to address the restitution?

[00:34:48] Speaker 00:
Yes, so this court's case law in Batson, May, and Reid, all of which we've cited in our briefing, are very explicit that the element on which the restitution is based has to be found by the jury, and specifically Reid talks about that.

[00:35:08] Speaker 00:
So scheme or a conspiracy has to be an element of the offense.

[00:35:15] Speaker 00:
And for example, that's true for the healthcare fraud.

[00:35:18] Speaker 00:
If you look at the jury instruction for that, the jury did have to find a scheme.

[00:35:24] Speaker 00:
That's what the jury instructions told them.

[00:35:26] Speaker 00:
And the government has now argued that in closing argument, the prosecutor did mention a scheme and told the jury it had to find a scheme.

[00:35:34] Speaker 00:
But we look at the jury instructions and the verdict form to see what the jury actually had to find.

[00:35:40] Speaker 00:
And in terms of whether a scheme or a conspiracy is an element,

[00:35:45] Speaker 00:
That's really a legal question.

[00:35:47] Speaker 00:
And this court, and I'm sorry it's not cited in our briefing because the government didn't really raise this point in its answering brief, but in United States versus McHatton, which was an unpublished case, number 2210329 in December 4, 2024,

[00:36:05] Speaker 00:
This court said that scheme is not an element of the offense.

[00:36:10] Speaker 00:
That again, the statute itself has an element of a manipulative or deceptive device or contrivance, and then 10b-5 lists modes of contrivances, which includes a misstatement or an omission or a scheme or a course of conduct.

[00:36:30] Speaker 00:
And so any of those can be alleged to satisfy the element of contrivance.

[00:36:33] Speaker 00:
So even if you could fit scheme as a potential element the way that a case was presented to the jury, here what the jury had before them in their conference room when they were deliberating was an instruction that did not require them to find a scheme, a verdict form that listed three specific misstatements, and then a cross-reference the indictment which, to Judge Bress's point,

[00:37:00] Speaker 00:
called out the three specific misstatements.

[00:37:02] Speaker 00:
So where these modes were all listed in this disjunctive, this jury simply did not have to find a scheme.

[00:37:11] Speaker 00:
It was directed to find misstatements.

[00:37:13] Speaker 00:
And I'll also point the court to the fact that the district court itself acknowledged that the jury found misstatements, that it didn't find a scheme.

[00:37:22] Speaker 00:
So when it was calculating the sentencing guidelines at ER,

[00:37:29] Speaker 00:
to 70, it talks about the fact, I apologize, I might have, no, I apologize, it's ER 21.

[00:37:43] Speaker 00:
The court points out that the government's expert made no effort to attribute the losses to the three misstatements.

[00:37:53] Speaker 00:
which is what the jury found.

[00:37:54] Speaker 00:
It pointed out that it based it on this fraud scheme, that was not what the jury found.

[00:38:00] Speaker 00:
So the court refused to use the loss estimate, the scheme loss estimate for purposes of sentencing, but where it went astray was that it felt that a lower burden of proof applied at the restitution stage, and so it widened the offense conduct that it was willing to consider.

[00:38:23] Speaker 02:
Counsel, I have a question.

[00:38:24] Speaker 02:
Was there any objection by the defense as to the jury instructions or the verdict forms?

[00:38:31] Speaker 00:
No, because they were proper.

[00:38:32] Speaker 00:
Those modes are meant to be listed in the disjunctive.

[00:38:37] Speaker 00:
And this court has said in other cases that that's the way that the jury instructions can be stated.

[00:38:43] Speaker 00:
They can state that the securities fraud could have been committed by any number of these means of deceptive practice.

[00:38:57] Speaker 02:
So they were proper

[00:38:59] Speaker 02:
And now I'm a little confused here.

[00:39:01] Speaker 02:
So the jury instructions were proper, but the way that the jury actually fettered out its decision is improper?

[00:39:08] Speaker 00:
No, the jury didn't do anything improper.

[00:39:12] Speaker 00:
It just shows that the jury didn't have to find a scheme.

[00:39:17] Speaker 00:
So if the government wants to base a restitution award on scheme liability, then it has to have the jury find scheme liability because you can't base

[00:39:29] Speaker 00:
the restitution order on something the jury didn't find.

[00:39:32] Speaker 00:
And here what I'm pointing out in the jury instructions in the verdict form is that nothing required the jury to find scheme as an element of this offense.

[00:39:46] Speaker 00:
And so the prosecution can't say to the jury, if you find these three misstatements,

[00:39:53] Speaker 00:
you can convict him of securities fraud and then turn around and try and base the restitution loss on a fraud scheme that the jury didn't have to find, because the jury just had to find that array that made those three misstatements.

[00:40:11] Speaker 02:
So I guess my confusion also lies in the fact that why wasn't this pointed out when they had a discussion with the court about the jury instructions?

[00:40:18] Speaker 02:
that hey your honor this i mean yes legally it is correctly worded but what the government is trying to do is not the appropriate way to go

[00:40:26] Speaker 02:
this is not the appropriate way to go about it.

[00:40:28] Speaker 00:
Because they didn't know what theory of restitution the government was going through.

[00:40:34] Speaker 00:
So, you know, they're going through the trial.

[00:40:36] Speaker 00:
The prosecution is proving securities fraud in whatever manner.

[00:40:42] Speaker 00:
I think it was well understood that it was gonna be based on these three misstatements.

[00:40:46] Speaker 00:
It used common jury instructions, which is allowed.

[00:40:49] Speaker 00:
The verdict form pointed the jury to the three misstatements.

[00:40:53] Speaker 00:
The problem arises at sentencing

[00:40:55] Speaker 00:
when all of a sudden the government seeks a loss based on a five-year scheme.

[00:41:05] Speaker 00:
And it wasn't apparent to defense counsel that that was going to happen because that was at sentencing and the government hadn't already said, oh, and by the way, you know, down the road we're going to ask for, you know, five years' worth of loss for restitution.

[00:41:20] Speaker 00:
That gets done way after the trial.

[00:41:22] Speaker 00:
And so there was no problem in the trial itself.

[00:41:25] Speaker 00:
The reason I point to the jury instructions and the verdict form is because the government has to base its loss calculation on an element that the jury actually found.

[00:41:38] Speaker 01:
But Batson seems to indicate it's based on conduct in terms of restitution, not necessarily finding an element.

[00:41:47] Speaker 01:
I'm quoting it.

[00:41:49] Speaker 01:
The word must be tied to the specific conduct that is the basis of the offensive conviction.

[00:41:56] Speaker 01:
So it seems to me under Batson, one can look at the trial testimony, not necessarily the jury fighting.

[00:42:07] Speaker 01:
Yeah, I'm talking when we're talking about sentencing, obviously.

[00:42:11] Speaker 00:
Sentencing.

[00:42:12] Speaker 01:
Yeah, restitution.

[00:42:13] Speaker 00:
Well,

[00:42:15] Speaker 00:
I would say that that is related conduct because the jury didn't have to find the scheme and so even though the prosecution put that on and certainly I think that could be related conduct for sentencing purposes in calculating what the sentencing range is which does allow for related conduct to come in and you look at how was the case argued and everything else that was put before the jury and even sometimes

[00:42:44] Speaker 00:
conduct that wasn't put before the jury.

[00:42:46] Speaker 00:
But when it comes to restitution, and I would point the court especially to the Reed case, which talked about the elements at page 1422,

[00:42:57] Speaker 00:
it has to be based on what the jury actually found as the elements of the offense.

[00:43:05] Speaker 00:
And in that case, it pointed out that a conspiracy was not an element of the felon in possession offense or whatever was at issue in that case.

[00:43:14] Speaker 00:
And here, it's simply not the case that scheme was an element of the offense.

[00:43:20] Speaker 00:
Yes, the government talked about a scheme and how all of these three misstatements were related.

[00:43:26] Speaker 00:
but it didn't ask the jury to find that a scheme, that these misstatements were made in, you know, in connection with an overarching scheme.

[00:43:38] Speaker 04:
I know you're way over, but I want to briefly ask you about the ECRA issue again.

[00:43:43] Speaker 04:
I take your position to be that a marketer can sometimes still be liable under this.

[00:43:49] Speaker 04:
I think there's been some confusion over whether marketers or sales agents are just totally outside the statute.

[00:43:54] Speaker 04:
But I hear you saying, no, sometimes they can be.

[00:43:57] Speaker 00:
Yes, and I think the Fifth Circuit makes that very clear.

[00:44:00] Speaker 00:
Okay.

[00:44:01] Speaker 04:
And it puts forward... If having a marketer lie to doctors is not an inducement, what are examples of things that would be an inducement?

[00:44:12] Speaker 04:
Inducing a marketer who induces a referral, who is this gonna cover?

[00:44:18] Speaker 00:
There is an example in the Handluster case.

[00:44:21] Speaker 00:
I think in that case,

[00:44:24] Speaker 00:
Doctors were told that they would get certain benefits if they made if and only if they made referrals.

[00:44:33] Speaker 00:
And so there was a promise that they would get

[00:44:36] Speaker 00:
And I don't think it was necessarily compensation, you know, maybe they would get a You know an office or office help or something like that in in exchange for the referral So if the marketer is offering the doctor something hey, you're gonna get something for sure out of this if you send us the referral then that the marketer is making a

[00:45:02] Speaker 00:
is basically offering some sort of remuneration or benefit to the doctor that's inducing the referral.

[00:45:09] Speaker 00:
So that's a situation where there could be something.

[00:45:12] Speaker 00:
Also, if the marketer gets to fill in the form and the doctor's just approving it and they always approve it, I think that type of situation was discussed in the Fifth Circuit cases where the marketer

[00:45:27] Speaker 00:
basically is in a position to say, hey doctor, I filled out all the forms, don't worry about it, just do your stamp of approval, and it's shown that the doctor has never overridden the referral forms that the marketer has filled out.

[00:45:45] Speaker 00:
That crosses the line, and that becomes inducing a referral, even if the doctor has some sort of ability to overrule the marketer.

[00:45:56] Speaker 02:
Let me ask one further question on that, where you said the marketer must offer the doctor something, whether it was an office space or help or whatnot.

[00:46:05] Speaker 02:
Does it have to be tangible?

[00:46:07] Speaker 02:
What if I'm the marketer and I say, look, with this test, it's so much better than the rest, you might be able to find other elements for your patients.

[00:46:15] Speaker 02:
And thereby, you get to treat them even more, you get more insurance money because you found cancer early on them.

[00:46:25] Speaker 00:
I don't think that's enough for a few reasons.

[00:46:28] Speaker 00:
And I think, first of all, the Han-Lester case did point out that the promise that maybe there will be some benefit to the doctor or the doctor's patient down the road is not distinct enough of remuneration.

[00:46:43] Speaker 00:
And so it has to be

[00:46:45] Speaker 00:
clear enough that this is tied to the referral and the doctor is going to get it.

[00:46:51] Speaker 00:
And so that's one reason, and then second is I think the looser, this idea that you can just say, oh, maybe this will be good for your patients, and then the doctor is enticed to refer the patient based on that, that starts to get into the territory of what the Supreme Court has said

[00:47:13] Speaker 00:
gets far afield of a kickback or a bribe theory, where you kind of have intangible benefits that are being offered.

[00:47:21] Speaker 00:
And so I would say, you know, it gets back to the principle that kickbacks and bribes have a very well-defined ordinary meaning in criminal law, and the Supreme Court has continually rejected efforts to spread out the theory to cover broader scenarios.

[00:47:44] Speaker 04:
Okay, well I want to thank you both for your arguments this morning.

[00:47:47] Speaker 04:
This matter is submitted and that concludes our calendar for today.

[00:47:50] Speaker 04:
We'll be adjourned.