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United States v. Zhang

United States District Court, W.D. Virginia, Roanoke Division

July 1, 2019

UNITED STATES OF AMERICA,
v.
YIHENG PERCIVAL ZHANG Defendant.

          MEMORANDUM OPINION

          Michael F. Urbanski, Chief United States District Judge.

         On February 21, 2019, this court found defendant Yiheng Percival Zhang guilty of conspiracy to defraud the United States under 18 U.S.C. § 371 (Count One), aiding and abetting the submission of false statements under 18 U.S.C. §§.2 and 1001(a)(2) (Counts Three, Four, and Five), and obstruction of justice under 18 U.S.C. § 1519 (Count Twelve). Zhang, with the consent of the government, waived his right to a jury trial, and this case was tried before the court.

         Zhang has moved for judgment of acquittal as to Counts One, Three, Four, and Five, arguing insufficiency of the evidence and claiming no reasonable fact-finder could convict on these counts. ECF No. 185. The government disagrees and urges the court to affirm the guilty verdict on these counts. Zhang did not move for acquittal as to Count Twelve, charging obstruction of justice.

         After careful review of the trial record and arguments of counsel, the court concludes that the government submitted sufficient evidence for a reasonable fact-finder to find Zhang guilty of conspiracy and of aiding and abetting the submission of false statements as charged in Counts One, Three, Four, and Five. Accordingly, the motion for judgment of acquittal, ECF No. 185, is DENIED.

         I.

         Though the court assumes the parties are familiar with the findings of fact outlined in the Findings of Fact and Conclusions of Law, ECF No. 184, the facts pertinent to Counts One, Three, Four, and Five are summarized below.

         Zhang founded Cell-Free Bioinnovations, Inc. ("CFB") and served as its President and Chief Scientific Officer at all times relevant to these charges. ECF No. 184, at 5. A small research company, CFB relied exclusively on grant funding for its programs. Id. at 8. Three CFB proposals to the National Science Foundation ("NSF") are at the heart of this Rule 29 motion: the "Inositol 1" grant proposal, "Sugar Phosphate" grant, and "Inositol 2" grant proposal.[1]

         These three proposals fell into two categories of grants: Small Business Innovation Research ("SBIR") and Small Business Technology Transfer Research ("STTR"). ECF No. 184, at 9. Both categories aim to promote innovation in the private sector by providing early-stage capital to entrepreneurs. Id. The proposal process is highly competitive; generally, only 10-20% of proposals receive funding. Id. at 10. The process begins with a public solicitation, which lays out the requirements grant recipients must meet and references specific policies, terms, and conditions with which applicants must comply. Id. at 10, 45. Before submission, an Authorized Organizational Representative ("AOR") must electronically sign various certifications. One such certification specifies that "[b]y electronically signing and submitting this proposal, the Authorized Organizational Representative or Individual Applicant is . . . agreeing to accept the obligation to comply with NSF award terms and conditions if an award is made as a result of this application." ECF No. 126, at 2-3.

         Like all NSF solicitations, the solicitations to which CFB responded with the Inositol 1, Sugar Phosphate, and Inositol 2 proposals state that "[a]ny proposal submitted in response to this solicitation should be submitted in accordance with the revised NSF Proposal & Award Policies & Procedures Guide (PAPPG) (NSF 15-1), which is effective for proposals submitted, or due, on or after December 26, 2014." ECF No. 184, at 46; Ex. 2A, at 1 (relating to Inositol l);[2] Ex. 1A.1 (relating to Sugar Phosphate);[3] Ex. 3A (relating to Inositol 2).[4] The PAPPG defines the responsibilities of the NSF and the grantee as follows:

(1) NSF agrees to provide up to a specified amount of financial support for the project to be performed under the conditions and requirements of the grant. NSF will monitor grant progress and assure compliance with applicable standards.
(2) The grantee agrees to: perform the project as proposed; the prudent management of the funds provided; and carry out the supported activities in accordance with the provisions of the grant.

Ex. 1A.3, at 15.[5] The PAPPG also states that "[t]he same work cannot be funded twice." Id., at 32. The PAPPG's Proposal Preparation & Submission Guidelines require disclosure of "all current and pending support for ongoing projects and proposals, including this project, and any subsequent' funding in the case of continuing grants. All current project support from whatever source (e.g. Federal, State, local or foreign government agencies, public or private foundations, industrial or other commercial organizations) must be listed." Id. at 54 (emphasis in original). The PAPPG's Award & Administrative Guidelines state that "[t]he acceptance of an award from NSF creates a legal duty on the part of the grantee organization to use the funds or property made available in accordance with the terms and conditions of the award." Ex. P-1.aiii, at 119. These policies are consistent with the testimony of Dr. Prakash Balan, a Program Director at NSF. Balan emphasized that grant funds are not awarded for research that is already completed and that, with the exception of a 7 percent profit margin, grant awards must be spent on the subject of the grant. ECF No. 184, at 46-47.

         The government introduced extensive email evidence in which Zhang repeatedly discussed his scheme to obtain federal grant funds via the Inositol 1, Sugar Phosphate, and Inositol 2 grant proposals, for research that had already been completed in China.[6] Zhang's emails indicated he that planned to impermissibly use significant portions of any awarded grants to fund other projects.[7]

         Counts Three, Four, and Five of the superseding indictment charged Zhang with aiding and abetting false statements made in a matter within the jurisdiction of the executive branch of the Government of the United States, within the Inositol 1, Sugar Phosphate, and Inositol 2 grant proposals respectively. The superseding indictment alleged that these proposals "falsely represented the funds sought would be used to fund new research on certain matters, when, in fact, the funds were to be used for other purposes." ECF No. 63, at 9. Plainly, the superseding indictment provided Zhang with notice of the false statements charged such that he could prepare his defense. In particular, the superseding indictment identified (1) the three NSF proposals, (2) the false certifications, and (3) the reason the certifications were false. Nevertheless, Zhang filed a motion for a bill of particulars to which the court directed the government to respond. At a pretrial conference held on August 7, 2018, the government indicated that it would respond to the motion for bill of particulars that day that will provide defendant with some information. Crim. Mins., ECF No. 125. In its response, the government stated: "While the government's position is that the superseding indictment fairly apprises the defendant of the charges so that he can prepare a defense and avoid surprise at trial, the government is also providing the following information out of an abundance of caution." ECF No. 126, at 1. At a subsequent pretrial hearing held on August 24, 2018, the court inquired about the bill of particulars issue. Zhang's counsel stated that the response received was substantive, helpful, and alleviated concerns and had no issue to raise with the court. Crim. Mins., ECF No. 132.

         The government's response to the motion for bill of particulars as to Counts Three, Four, and Five all follow a similar pattern. The response identified the same false representation, rationale, and omissions for each proposal. The false representation and rationale were:

By electronically signing and submitting this proposal, the - Authorized Organizational Representative or Individual Applicant is: (1) certifying that statements made herein are true and complete to the best of his/her knowledge; and (2) agreeing to accept the obligation to comply with NSF award terms and conditions if an award is made as a result of this application.' This statement is false in that the defendant and CFB had no intention of complying with NSF award terms and conditions.

ECF No. 126, at 2-3. As to all three counts, the response also listed omissions consisting of the "Failure to disclose the relationship between Yiheng Percival Zhang and the Tianjin Institute of Industrial Biotechnology, Chinese Academy of Sciences, Tianjin, China; (2) Failure to disclose that much, if not all, of the work set forth in the attached Proposal had already been done and/or funded in China; and (3) Failure to disclose the intended use of the grant funds." Id. at 2-4.

         The government alleged, and the court found, that Zhang worked to obtain competitive NSF awards for projects that he admitted had already been completed in China, in violation of grant requirements that the grants be for new work to be done in the United States. ECF No. 184, at 2. The court found that the evidence showed, beyond a reasonable doubt, that Zhang is guilty of aiding and abetting the submission of false certifications in the Inositol 1, Sugar Phosphate, and Inositol 2 proposals. ECF No. 184, at 52, 59, 61. In Count One, the court also found Zhang guilty of conspiracy to defraud the United States by making these false representations. ECF No. 184, at 40.

         II.

         The court now turns to the merits of the motion for acquittal. Rule 29 of the Federal Rules of Criminal Procedure states that "the court may set aside the verdict and enter an acquittal" if the defendant so moves within 14 days of the verdict. Fed. R. Crim. P. 29(c).

         "There is only one ground for a motion for judgment of acquittal. This is that the evidence is insufficient to sustain a conviction of one or more of the offenses charged in the indictment or information." 2A Charles A. Wright, Federal Practice and Procedure: Criminal § 466 (4th ed. 2016) (internal citations omitted). "A judgment of acquittal based on the insufficiency of evidence is a ruling by the court that as a matter of law the government's evidence is insufficient 'to establish factual guilt' on the charges in the indictment." United States v. Alvarez., 351 F.3d 126, 129 (4th Cir. 2003) (quoting Smalis v. Pennsylvania., 476 U.S. 140, 144 (1986)). "The test for deciding a motion for a judgment of acquittal is whether there is substantial evidence (direct or circumstantial) which, taken in the light most favorable to the prosecution, would warrant a ¶¶ finding that the defendant was guilty beyond a reasonable doubt." United States v. MacCloskey., 682 F.2d 468, 473 (4th Cir. 1982). "[Substantial evidence is evidence that a reasonable finder of fact could accept as adequate and sufficient to support a conclusion of a defendant's guilt beyond a reasonable doubt." United States v. Burgos, 94 F.3d 849, 862 (4th Cir. 1996). Accordingly, a court must deny a defendant's motion if the evidence presented at trial, viewed in the light most favorable to the government, is sufficient for a rational juror to find each element of the offense beyond a reasonable doubt. United States v. United Med. & Surgical Supply Corp., 989 F.2d 1390, 1402 (4th Cir. 1993) (citing Jackson v. Virginia. 443 U.S. 307, 319 (1979)): see also United States v. Friske., 640 F.3d 1288, 1290-91 (11th Cir. 2011) ("In reviewing a sufficiency of the evidence challenge, we consider the evidence in the light most favorable to the [g]overnment, drawing all reasonable inferences and credibility choices in the [g]overnment's favor.").

         III.

         Counts Three, Four, and Five all involve charges associated with aiding and abetting die submission of false representations. To find Zhang guilty of these charges, the court must be convinced beyond a reasonable doubt that Zhang committed the specific crime as charged. The pertinent statute, 18 U.S.C § 1001, states:

[W]hoever, in any matter within die jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully . . . makes any materially false, fictitious, or fraudulent statement or representation . . . shall be guilty of an offense against the United States.

18 U.S.C. § 1001(a)(2). "The essential elements of a § 1001(a)(2) offense are, as follows: 1. [a] material statement or representation; 2. [w]hich is false, fictitious, or fraudulent, 3. [m]ade in a matter within the jurisdiction of a department or agency of the United States; and 4. [d]one knowingly and willfully." United States v. Stover, 499 Fed.Appx. 267, 272-73 (4th Cir. 2012) (citing United States v. Camper, 384 F.3d 1073, 1075 (9th Cir. 2004)). "[T]he terms 'knowingly and willfully' modify only the making of 'false, fictitious or fraudulent statements.'" United States v. Yermian, 468 U.S. 63, 69 (1984). "P]n the context of false statement prosecutions, when the indictment has specifically alleged die facts that show the defendant's statement is false, the government must prove the statement is untruthful for the reason alleged in the indictment." United States v. Mallory., No. 1:17-CR-154, 2018 WL 4997641, at *8 (E.D. Va. Oct. 15, 2018) (citing United States v. Hoover., 467 F.3d 496 (5th Cir. 2006); United States v. Crocker, 568 F.2d 1049, 1060 (3d Cir. 1977)).

         For Counts Three, Four, and Five, criminal liability is premised on Zhang's conduct in aiding and abetting others to make false statements. 18 U.S.C. § 2 states:

(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces, or procures its commission, is punishable as a principal.
(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United ...

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