U.S. Securities and Exchange Commission v. Yang et al

Filing 288

MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 3/30/2014: For the reasons stated in this memorandum opinion and order, the Court denies defendant Yang's motion for judgment as a matter of law or in the alternative for a new trial [docket no. 261]. (mk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
vs.
SIMING YANG, et al.,
Defendants.

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Case No. 12 C 2473

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
After a six-day trial, a jury found in favor of Siming Yang on the SEC's claim of
insider trading but found in favor of the SEC against Yang on its claims of "frontrunning" and filing false Schedule 13(d) forms with the SEC. Yang has moved for
judgment as a matter of law on the latter claims or for a new trial.
1.

JMOL motion
A court may enter judgment as a matter of law in a party's favor only if "the

evidence presented, combined with all reasonable inferences permissibly drawn
therefrom, is [not] sufficient to support the verdict when viewed in the light most
favorable to the party against whom the motion is directed." Clarett v. Roberts, 657
F.3d 664, 674 (7th Cir. 2011). A jury's verdict may be overturned "only if no reasonable
juror could have found in the [prevailing party's] favor." Id. The Court "must construe
the facts strictly in favor of the party that prevailed at trial." Schandelmeier–Bartels v.
Chicago Park Dist., 634 F.3d 372, 376 (7th Cir. 2011).

Yang argues that "there was no evidence presented at trial from which the jury
could have reasonably concluded that Mr. Yang made the trades that allegedly
constituted front-running, and were required to be disclosed on a 13(d)." Yang Mot. at
3. The Court disagrees. The following evidence admitted at trial (catalogued by the
SEC in its response to the motion) amply supported a reasonable inference that Yang
made the trades:
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Yang signed account opening documents for the account in which the
trades were made and sent those documents to the brokerage firm.

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The account was a joint account that he held with Caiyin Fan as joint
tenants.

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Yang funded the account by transferring $596,000 from his personal bank
account.

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The trades in question were large trades and involved both stock and
options. They would have been, to say the least, extremely unusual
trades for someone who had no background in the securities business or
who had not researched Zhongpin, the company whose stock and options
were traded.

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Yang was a professional in the securities business and had researched
Zhongpin. Fan, by contrast, had no apparent experience in trading or
analyzing stocks.

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The same IP addresses were used to place the Zhongpin trades from the
Yang / Fan account, send e-mails from Yang's e-mail address, and login
to the brokerage account of Prestige, which also traded in Zhongpin stock

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during the same period, and to which Fan had no access.
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The evidence tended to show that a single user performed all of the tasks
just referenced; the activity did not overlap in time.

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The trading activity in the Yang / Fan account matched Yang's travel, in
that when he was in China, trades were placed from IP addresses there,
and when he was in New York, trades were placed from United States IP
addresses assigned to Yang's Internet service provider.

See SEC Resp. at 3-4. Yang offers a different interpretation of this evidence, but the
evidence provided the jury with more than enough to permit a reasonable finding that
Yang made the trades and that he did so before the trades made by Zhongpin, which
moved the market and made Yang's personal trades profitable, were executed. There
is no basis to overturn the jury's verdict and enter judgment in Yang's favor.
For the same reasons, to the extent Yang seeks a new trial on the ground that
the jury's verdict was against the manifest weight of the evidence (relief he hints at on
page 1 of his motion), the Court denies that request as well. A court may set aside a
verdict on this basis "only if no rational jury could have rendered the verdict. The . . .
court must view the evidence in the light most favorable to the prevailing party, leaving
issues of credibility and weight of the evidence to the jury." Lewis v. City of Chicago
Police Dep't, 590 F.3d 427, 444–45 (7th Cir. 2009). Viewed in that light, the evidence
amply supported the jury's verdict.
2.

Motion for new trial
Yang also seeks a new trial, taking issue with the Court's decision not to permit

Fan, who resides in China, to testify via video conference.

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Fan was also sued by the SEC. At one point, it appeared she had been served
with summons, but it now appears that she did not receive the summons. That aside,
however, Yang was fully aware during the discovery process that Fan had not appeared
in the case via counsel and, because she is a friend of his, he was obviously aware that
she lived in China. Thus he fully knew there was a chance she would not appear at
trial. He could have sought to take her deposition at any time during the discovery
process or prior to trial. This would have given the SEC an opportunity to question her
in person prior to trial and to investigate any leads or other information she offered.
However, Yang did not take steps to secure her testimony prior to trial via deposition or
otherwise. Instead, he waited until the eleventh hour and brought up the issue of video
testimony for the first time in an unsupported oral request at the final pretrial
conference. The Court requested briefs and decided the matter in a written order. See
SEC v. Yang, Order of Dec. 31, 2013 (dkt. no. 233). The Court adopts its earlier
analysis in full and attaches a copy of that order to this one as an Appendix.
Yang has offered nothing new on this point in his post-trial motion. The Court
also notes that the story regarding why Fan could not or would not appear has changed,
or at least evolved, since defense counsel first raised the matter at the final pretrial
conference on December 19. In his written motion filed on December 23, Yang said
that Fan was unlikely to be able to attend
primarily due to the challenges for a citizen of the People’s Republic of
China to obtain a travel visa to the United States. For example, it appears
that these witnesses would have to deposit a significant amount of funds
in a bank account prior to obtaining a visa for travel. . . . Caiyin Fan is
trying to make travel arrangements to come to Chicago for trial in this
matter. But as noted above, the visa process is challenging and she may
be unable to attend the trial.

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Defs.' Mot. to Present Trial Testimony by Video Conference ¶¶ 1, 2. In court on
January 3, defense counsel said that Fan expected to arrive in the U.S. on January 12
so that she could testify on January 13. Trial Tr. 10. On January 8, defense counsel
said that Fan had reported she was coming and "as far as I know they have the visas."
Trial Tr. 884. On January 10, defense counsel reported for the first time a completely
different reason for Fan's possible non-appearance: he stated that Fan's husband was
concerned she would be arrested if she came to the US. Finally, Fan's affidavit
submitted in connection with Yang's post-trial motion, though it repeats the point about
her husband's concern, gives a completely new reason: "my husband is a Mayor of a
city who was then in the annual audit process conducted by the Central Government,
which requires retaining the passports for himself and his spouse until the audit closes.
I was eventually unable to retrieve my passport in time from the Central Government
therefore could not come to U.S to testify." Fan Affid. ¶ 22.
The bottom line, as the Court concluded in its pretrial ruling, is that if Yang had
exercised even a modicum of diligence and taken appropriate steps earlier, or during
the discovery process, he would have been able to secure Fan's testimony in an
appropriate way, via deposition or otherwise. However, Yang did not exercise due
diligence, despite the fact that the possibility of Fan's inability to appear at a trial halfway
around the world was obvious. For these reasons and those described in the earlier
order, the Court's ruling precluding a video appearance does not entitle Yang to a new
trial.

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Conclusion
For the reasons stated above, the Court denies defendant Yang's motion for
judgment as a matter of law or in the alternative for a new trial [docket no. 261].

________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: March 31, 2014

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APPENDIX
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

U.S. SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
vs.
SIMING YANG, et al.,
Defendants.

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Case No. 12 C 2473

ORDER ON DEFENDANTS' MOTION TO PRESENT
TRIAL TESTIMONY BY VIDEO CONFERENCE
This case is set for trial during the first week of January 2014. The Court set the
trial date on November 19, 2013, a few days after it denied defendants' motion for
summary judgment. At the final pretrial conference, held on December 20, 2013,
defendants raised the issue of presenting testimony of certain witnesses by video from
other locations, primarily the People's Republic of China. Plaintiff objected, and the
Court raised certain concerns as well and requested briefs.
Defendant formally moved on December 23, 2013 to permit video testimony
from four witnesses. Three of them, Caiyin Fan (also a named defendant who has not
appeared or responded to the complaint), Zhen Lin He, and Leslie Lu, live in China.
The fourth, Judy Hu, lives in New York City but "is almost nine months pregnant." Defs.'
Motion ¶ 5. Plaintiff opposes defendants' motion.
Federal Rule of Civil Procedure 43(a) provides that
[a]t trial, the witnesses' testimony must be taken in open court unless a
federal statute, the Federal Rules of Evidence, these rules, or other rules

APPENDIX

adopted by the Supreme Court provide otherwise. For good cause in
compelling circumstances and with appropriate safeguards, the court may
permit testimony in open court by contemporaneous transmission from a
different location.
Fed. R. Civ. P. 43(a). The advisory committee notes to Rule 43(a) provide guidance
what may constitute "good cause in compelling circumstances with appropriate
safeguards":
Contemporaneous transmission of testimony from a different location is
permitted only on showing good cause in compelling circumstances. The
importance of presenting live testimony in court cannot be forgotten. The
very ceremony of trial and the presence of the factfinder may exert a
powerful force for truthtelling. The opportunity to judge the demeanor of a
witness face-to-face is accorded great value in our tradition. Transmission
cannot be justified merely by showing that it is inconvenient for the witness
to attend the trial.
The most persuasive showings of good cause and compelling
circumstances are likely to arise when a witness is unable to attend trial
for unexpected reasons, such as accident or illness, but remains able to
testify from a different place. Contemporaneous transmission may be
better than an attempt to reschedule the trial, particularly if there is a risk
that other—and perhaps more important—witnesses might not be
available at a later time.
Other possible justifications for remote transmission must be approached
cautiously. Ordinarily depositions, including video depositions, provide a
superior means of securing the testimony of a witness who is beyond the
reach of a trial subpoena, or of resolving difficulties in scheduling a trial
that can be attended by all witnesses. Deposition procedures ensure the
opportunity of all parties to be represented while the witness is testifying.
An unforeseen need for the testimony of a remote witness that arises
during trial, however, may establish good cause and compelling
circumstances. Justification is particularly likely if the need arises from the
interjection of new issues during trial or from the unexpected inability to
present testimony as planned from a different witness.
Good cause and compelling circumstances may be established with
relative ease if all parties agree that testimony should be presented by
transmission. The court is not bound by a stipulation, however, and can
insist on live testimony. Rejection of the parties' agreement will be
influenced, among other factors, by the apparent importance of the
testimony in the full context of the trial.
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A party who could reasonably foresee the circumstances offered to justify
transmission of testimony will have special difficulty in showing good
cause and the compelling nature of the circumstances. Notice of a desire
to transmit testimony from a different location should be given as soon as
the reasons are known, to enable other parties to arrange a deposition, or
to secure an advance ruling on transmission so as to know whether to
prepare to be present with the witness while testifying.
...
Safeguards must be adopted that ensure accurate identification of the
witness and that protect against influence by persons present with the
witness. Accurate transmission likewise must be assured.
Other safeguards should be employed to ensure that advance notice is
given to all parties of foreseeable circumstances that may lead the
proponent to offer testimony by transmission. Advance notice is important
to protect the opportunity to argue for attendance of the witness at trial.
Advance notice also ensures an opportunity to depose the witness,
perhaps by video record, as a means of supplementing transmitted
testimony.
Fed. R. Civ. P. 43, 1996 advisory committee notes.
1.

Subjects of the witnesses' testimony
Defendants describe the anticipated subjects of these witnesses' testimony as

follows. Caiyin Fan is identified as the "primary" account holder on a brokerage account
on which defendant Yang is identified as the "secondary" account holder. Yang is
charged with making or causing trades through this account in violation of the securities
laws, on the basis that the trades involved illegal insider trading and that they involved
"front running" larger trades being made by Yang's company Prestige Trade
Investments Ltd. Yang has testified that Fan made the trades, and one assumes that
Fan, if she testifies, will support Yang's statements. Defendants say that Yang "will
testify about the formation of the . . . account and the trades in the account" and "will
corroborate that Yang did not have an ownership interest in the securities in the
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account." Defs.' Motion ¶ 2. Defendants did not take or seek to take Fan's deposition
during the period for discovery in this case.
Zhen Lin He is said to have traveled with Yang to observe the retail operations of
Zhongpin, the entity whose stock and options Yang is alleged to have traded illegally.
According to defendants, He has photographs of some of Zhongpin's establishments on
his camera and will testify about the due diligence that Yang conducted before
purchasing Zhongpin securities. Defendants say that He's testimony will "corroborate[ ]
that the Zhongpin securities were purchased only after due diligence, and that purported
illegal insider information had nothing to do with the purchases." Id. ¶ 3. Defendants
did not take or seek to take He's deposition during the period for discovery.
Leslie Hu will also render testimony regarding Yang's due diligence regarding
Zhongpin. His deposition was taken during discovery.
Finally, Judy Hu lives in New York City but, as previously noted, is pregnant and
is expected to give birth soon. She worked at an investment bank during the relevant
period and would testify that she had repeated correspondence with Yang concerning
Zhongpin prior to the trades in question. Defendants say that her testimony, like that of
Hu and He, will corroborate Yang's contention that the alleged inside information had
nothing to do with the purchases in question. Id. ¶ 5.
2.

Grounds asserted as "good cause in compelling circumstances"
Defendants say that the three witnesses who reside in China are attempting to

make travel plans to come to Chicago to testify. Id. ¶ 1. They argue that the Court
should permit them to testify via video conference from Hong Kong, to which they
apparently can travel without difficulty, for the following reasons:

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Defendants anticipate . . . that it may not be possible to have one or more
of these witnesses present for the trial. This is primarily due to the
challenges for a citizen of the People's Republic of China to obtain a travel
visa to the United States. For example, it appears that these witnesses
would have to deposit a significant amount of funds in a bank account
prior to obtaining a visa for travel.
Id. Defendants further state that Fan is "trying to make travel arrangements" to come to
trial but "the visa process is challenging and she may be unable to attend the trial." Id. ¶
2. They say that He "has also looked into the possibility of traveling to the United States
for trial, and has reported that he may not be able to obtain the appropriate paperwork
to travel to the United States." Id. ¶ 3. As to Lu, defendants say that he "is involved
with the care of his terminally ill father." Id. ¶ 4. Defendants provide no further details
about any of this, and they support none of it by affidavits from the witnesses,
documentation, or any other evidence (such as specific information regarding the
requirements for obtaining a visa). They add nothing in their reply brief, except for the
following statements regarding Fan and Lu: "Caiyin Fan is making efforts to travel to
the United States and defense counsel is optimistic that she will appear live," and Lu "is
taking care of his elderly, ill father in China and cannot travel at this time." Defs.' Reply
at 2.
3.

Judy Hu
Plaintiff does not object to presentation of the testimony by Hu (who lives in New

York City) under the terms and conditions proposed by defendants. The Court
approves this request because it has been sufficiently established that she cannot travel
due to the advanced stage of her pregnancy, a factor that defendants could not have
anticipated during the period for fact discovery, which ended more than nine months
ago. The Court's approval is, however, conditioned on defendants promptly making the
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necessary logistical arrangements with court staff (specifically, courtroom technology
administrator Joseph Novak) and on the compatibility of the court's video conferencing
equipment with the equipment that is available at the proposed remote location in New
York City. In addition, a person duly authorized to administer oaths must be present at
the location in New York City where Hu will appear to testify and will be required to
verify that no one else is present during the course of her testimony and that she does
not confer with anyone during the course of her testimony. The parties are also
expected to agree upon and make appropriate arrangements to have any exhibits that
will be shown to Hu present and available at the location where she will appear to
testify.
4.

Caiyin Fan, Zhen Lin He, and Leslie Lu
As to witnesses Fan, He, and Lu, defendants have failed to make a persuasive

showing of "good cause in compelling circumstances" as required by Rule 43(a). There
are, to be sure, cases in which courts have found it appropriate to permit witnesses who
reside abroad to testify by video conference. See, e.g., El-Hadad v. United Arab
Emirates, 496 F.3d 658, 668-69 (D.C. Cir. 2007); Lopez v. Miller, 915 F. Supp. 2d 373,
396 (E.D.N.Y. 2013). But in Lopez, the opposing party "[did] not contest the propriety of
the videoconference." Lopez, 915 F. Supp. 2d at 396 n.9. And in El-Hadad, "before
permitting the testimony, the district court insisted that El-Hadad prove he had pursued
and repeatedly been denied a visa to the United States." El-Hadad, 496 F.3d at 669.
No similar showing, or anything close to it, has been made here. Among other things,
defendants have offered no evidence regarding any efforts by any of these witnesses to
obtain a visa or that any of them has been denied a visa or has not succeeded in

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obtaining one, let alone why. In addition, defendants make a vague and unsupported
claim that to obtain a visa, a Chinese citizen must post funds, but they do not say how
much and do not attempt to establish that the sum is prohibitively expensive for any of
the witnesses in question.
Undue expense associated with international travel may, in some circumstances,
qualify as good cause, see Lopez v. NTI, LLC, 748 F. Supp. 2d 471, 480 (D. Md. 2010),
but in Lopez, the parties seeking to testify remotely established that they were
impecunious and thus could not reasonably be expected to travel to the United States to
testify. See id. Defendants have made no attempt to make such a showing here.
The Court also notes that assuming there are, in fact, insurmountable obstacles
obtaining a visa to travel to the United States or that travel is prohibitively expensive for
one or more of these witnesses, all of that certainly was known, or at least knowable
with due diligence, while discovery was proceeding. Hu's deposition was taken, and her
deposition testimony can be offered at trial—as it can for any witness who, for whatever
reason, is unable to appear or beyond the subpoena power. As to Fan and He,
because the circumstances that constitute the purported obstacles to their appearance
were known or knowable, defendants could have taken the steps necessary to obtain
their testimony via deposition while fact discovery was still open. As the advisory
committee notes to Rule 43(a) state, "[t]he most persuasive showings of good cause
and compelling circumstances are likely to arise when a witness is unable to attend trial
for unexpected reasons," and "[a] party who could reasonably foresee the
circumstances offered to justify transmission of testimony will have special difficulty in

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showing good cause and the compelling nature of the circumstances." Fed. R. Civ. P.
43, 1996 advisory committee notes (emphasis added).
The Court acknowledges the potential importance of the testimony of the two
witnesses who reside in China whose depositions were not taken, but the importance of
their testimony was no doubt known to defendants long ago (and Fan's non-appearance
as a defendant likewise was known long ago). This ought to have spurred defendants
to take the appropriate steps to take and preserve their testimony far sooner than the
eve of trial.1 See, e.g., Rodriguez v. SGLC, Inc., No. 2:08-cv-01971, 2012 WL 3704922,
at *3 (E.D. Cal. Aug. 24, 2012) ("[T]he circumstances confronting Plaintiffs can hardly be
construed as unforeseen.").
Conclusion
For the reasons stated in this order, the Court grants in part and denies in part
defendant's motion to present trial testimony by video conference [dkt. no. 228]. The
motion is granted as to Judy Hu, subject to the conditions stated in this order. The
motion is otherwise denied.

________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: December 31, 2013

1

The Court is willing to entertain a prompt renewed request by defendants to
present the testimony of Fan and Lu by video conference if defendants can cure
the deficiencies identified in this order and can overcome the other arguments
asserted by plaintiff.
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