Petition for Writ of Certiorari — Vaxima, Inc., et al., Petitioners v. United States
Supreme Court briefJun 25, 2022
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APPENDIX TABLE OF CONTENTS
OPINIONS AND ORDERS
Mandate of the United States Court of Appeals
for the Fourth Circuit (April 5, 2022) ................ 1a
Opinion of the United States Court of Appeals
for the Fourth Circuit (February 28, 2022) ....... 3a
Judgment of the United States Court of Appeals
for the Fourth Circuit (February 28, 2022) ..... 23a
Forfeiture Order of the United States District
Court of South Carolina (April 27, 2017) ........ 25a
Order on Post-Trial Rule 29 Motion of the United
States District Court for the District of South
Carolina (December 8, 2015)............................ 63a
Verdict Form for Vaxima, Inc.
(August 4, 2015) ............................................... 76a
Verdict Form for Genphar, Inc.
(August 4, 2015) ............................................... 77a
Order Accompanying the Verdict of the
United States District Court for the District
of South Carolina (August 4, 2015) ................. 78a
APPENDIX TABLE OF CONTENTS (Cont.)
REHEARING ORDER
Order of the United States Court of Appeals for
the Fourth Circuit Denying Petition for
Rehearing En Banc (March 28, 2022) ........... 123a
OPINION IN RELATED CASE
(UNITED STATES V. DONG)
Amended Opinion of the United States
Court of Appeals for the Fourth Circuit in
United States v. Dong (February 28, 2022) ... 125a
CASE DOCUMENTS
Third Superseding Indictment
(April 16, 2013) ............................................... 134a
App.1a
MANDATE OF THE UNITED STATES COURT
OF APPEALS FOR THE FOURTH CIRCUIT
(APRIL 5, 2022)
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
________________________
UNITED STATES OF AMERICA,
Plaintiff -Appellee,
v.
VAXIMA, INC.,
Defendant-Appellant.
________________________
No. 17-4277 (L)
(2:11-cr-00511-BHH-2)
________________________
UNITED STATES OF AMERICA,
Plaintiff -Appellee,
v.
GENPHAR, INC.,
Defendant-Appellant.
________________________
No. 17-4278
(2:11-cr-00511-BHH-3)
App.2a
The judgment of this court, entered February 28,
2022, takes effect today.
This constitutes the formal mandate of this court
issued pursuant to Rule 41(a) of the Federal Rules of
Appellate Procedure.
/s/ Patricia S. Connor, Clerk
App.3a
OPINION OF THE UNITED STATES COURT
OF APPEALS FOR THE FOURTH CIRCUIT
(FEBRUARY 28, 2022)
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
________________________
UNITED STATES OF AMERICA,
Plaintiff -Appellee,
v.
VAXIMA, INC.,
Defendant-Appellant.
________________________
No. 17-4277
________________________
UNITED STATES OF AMERICA,
Plaintiff -Appellee,
v.
GENPHAR, INC.,
Defendant-Appellant.
________________________
No. 17-4278
App.4a
PER CURIAM:
Vaxima, Inc. and GenPhar, Inc. (“Corporate Defendants”) were convicted of over twenty criminal offenses,
including wire fraud, theft of government property,
and conspiracy to defraud the United States. Each conviction arose from the fraudulent retention of federal
funds that were awarded pursuant to three Cooperative
Research and Development Agreements (“CRADAs”)
the Corporate Defendants held with federal agencies.
They raise myriad pretrial-, trial-, and sentencingrelated challenges on appeal. For the reasons that
follow, we affirm.
I.
In April 2011, Dr. Jian-Yun “John” Dong, Dr.
Danher Wang, GenPhar, and Vaxima were indicted by
a federal grand jury for thirty-four violations of federal
law. Dr. Wang later entered into a plea agreement
with the Government, under which she agreed to cooperate with the Government and testify against Dr.
Dong and the corporations.
GenPhar was established as a for-profit corporation in 1999 for the purpose of performing pharmaceutical and vaccine research. Dr. Dong was GenPhar’s
President and Chief Executive Officer, and also served
on its Board of Directors. Dr. Wang––Dr. Dong’s thenwife––was GenPhar’s Vice President of Research and
Development.
Vaxima “is [a] small subsidiary company” “under
GenPhar” that “solely belong[s] to Dr. Dong.” Gov’t
App.5a
Supp. J.A. 34–35.1 It provides vaccine production
services to GenPhar ostensibly as a cost-saving mechanism. Vaxima paid its employees with money that
GenPhar provided to it. But Vaxima paid GenPhar
rent for the space in which it performed its work, and
it also paid for Dr. Dong’s “corporate car[] [and] expenses.” Gov’t Supp. J.A. 751.
When GenPhar was first founded, it was funded
almost exclusively by investors.2 Indeed, over the course
of its existence, GenPhar received nearly $13 million
in investor funds. Eventually, those funds ran low,
and GenPhar began to operate primarily (and after
2009, exclusively) on funds it obtained from CRADAs.
The CRADAs at issue here are different from a
typical governmental grant. Under the terms of a
standard grant, an agency provides the grantee with
a lump sum of money and the grantee has discretion
to use that money as it deems fit in pursuing the
ultimate goal described in the grant application.
CRADAs, however, are different. A federal agency and
a private entity “enter into a collaborative effort to use”
congressionally-earmarked funds for a specific function
—in this case, vaccine research. Gov‘t Supp. J.A. 1176.
Unlike standard grants, CRADAs entail “substantial
Federal scientific or programmatic involvement,”
1 The parties filed four different appendices. Herein, we reference three of them: the initial Joint Appendix (“J.A.”), the Government’s supplemental appendix (“Gov’t Supp. J.A.”), and Defendants’ second supplemental appendix (“Defs.’ 2d Supp. J.A.”).
2 The record does not reflect the shareholders of GenPhar or
Vaxima or in what percentages or capacities shares were held.
Similarly, the record does not reflect whether GenPhar’s “investors”
received equity shares or debt instruments for their investments.
App.6a
which “means that, after award, scientific or program
staff” from the agency “will assist, guide, coordinate[,]
and participate in project activities.” Gov’t Supp. J.A.
344.
Another notable difference between typical grants
and CRADAs is that under a CRADA, the awardee
does not have total discretionary spending power.
Instead, a CRADA awardee is paid in accordance with
achieving certain scientific “milestones” enumerated
in the award. To receive a CRADA payment, the awardee
must submit to the federal agency “progress reports”
indicating which milestone(s) the awardee has achieved.
Upon satisfactory review, the agency will release the
money associated with that milestone to the awardee.
Relevant here, GenPhar was awarded three different CRADAs for vaccine research and production: one
by the Army Medical Research Institute of Infectious
Diseases (“the Army”) that ran from 2002 to 2007; one
by the Navy Medical Research Center that ran from
2005 to 2008; and one by the National Institutes of
Health (“NIH”) that ran from 2006 to 2011. These
CRADAs collectively provided GenPhar approximately
$15 million. Each federal agency was initially satisfied
with the work that was performed.
Federal officials later testified at trial that if
GenPhar saved some money on CRADA-funded work,
then GenPhar was not required to refund the agencies
that money, but only if it put those funds towards
other proposed work specified in the CRADA. None of
the CRADAs GenPhar held authorized it, or any other
defendant, to use funds for lobbying political officials
or to construct a new, freestanding research facility.
App.7a
In 2009, Special Agent Larry Leonard of the
Defense Criminal Investigative Service (“DCIS”)––an
investigative arm of the U.S. Department of Defense’s
Office of Inspector General––began investigating whistleblower allegations made in a qui tam civil suit that
GenPhar was committing fraud under its CRADA
with the NIH. His investigation revealed evidence
that GenPhar had submitted, and continued to submit,
claims for payment and progress reports under all
three CRADAs containing false statements. These
false statements, which Dr. Dong approved and signed,
certified that the Corporate Defendants had incurred
certain costs in performing, or subcontracting, work
that was required under any given CRADA. In fact,
however, the work either had not been performed, or
an undisclosed party performed it at a much lower cost.
In the Government’s view, this allowed the Corporate
Defendants to unlawfully “profit” from the CRADAs.
Special Agent Leonard discovered evidence that the
Corporate Defendants were using these unlawful
“profits” to build a brand-new research facility for
GenPhar and Vaxima and to lobby certain political
officials.
The evidence adduced at trial tracked Special Agent
Leonard’s findings. For example, GenPhar’s CRADA
with the NIH required GenPhar to hire a quality control
director and provided GenPhar $70,000 per year for
that position’s salary. Though GenPhar certified to
the NIH that it filled that position, it actually used
two existing employees (including Dr. Wang) to conduct
those duties, and retained the $70,000. Similarly, GenPhar’s CRADA with the Army provided approximately
$1 million for GenPhar to outsource two vaccine
studies: one to the Medical University of South
App.8a
Carolina, to be performed on rabbits; and a second
to an Army laboratory, to be performed on monkeys.
GenPhar certified to the Army that it had outsourced
both studies. Instead, Dr. Dong directed Dr. Wang to
conduct the rabbit study in-house, which ended up
costing less than $15,000. And while GenPhar outsourced the monkey study, it never paid the Army
laboratory the $614,250 it was owed for that work.
GenPhar kept those funds.
GenPhar employees also testified at trial that at
Dr. Dong’s direction, the money retained from the
various CRADAs was used to construct a new research
facility for GenPhar and Vaxima (“the GenPhar
Property” or “the Property”). The plans to construct
the Property arose sometime in 2005, and construction
began at some unspecified time thereafter. In 2010,
while construction still was ongoing, an NIH official
reviewing its CRADA with GenPhar asked to visit the
new Property. After receiving a tour from Dr. Dong,
the NIH official described the Property as “the Taj
Mahal of scientific buildings.” Gov’t Supp. J.A. 134. The
official asked Dr. Dong where the money came from to
construct the building. He responded that investor
money was the source of the construction funds. But
according to the Government’s accounting expert,
Johnathan Vaughn, between January 1, 2005, and
December 31, 2009, GenPhar had only received
$2,684,882.56 in non-CRADA funds (including investor
funds) while incurring $5,588,420.39 in constructionrelated invoices. And Dr. Dong himself admitted to
Special Agent Leonard during a 2009 interview that
GenPhar ran out of investor funds that year. Separately, trial testimony showed that hundreds of
thousands of dollars of CRADA funds were used to
App.9a
lobby political officials on behalf of GenPhar and Dr.
Dong.
II.
Based on the course of conduct set forth above, a
federal grand jury returned a thirty-four-count
indictment against GenPhar, Vaxima, Dr. Dong, and
Dr. Wang. Count One of the operative Third Superseding Indictment (“TSI”) alleged that Dr. Dong, the
Corporate Defendants, and Dr. Wang (identified in
the TSI as “Person A,” J.A. 138) conspired to defraud
the United States by obtaining payments under the
CRADAs through false and fraudulent statements, in
violation of 18 U.S.C. § 371. Count Seven alleged that
the Corporate Defendants and Dr. Dong’s receipt of a
payment under its CRADA with the NIH constituted
the theft of Government-owned property, in violation
of 18 U.S.C. § 641. Finally, Counts Thirteen through
Thirty-Four alleged that the false statements to
federal agencies by the Corporate Defendants and Dr.
Dong in order to obtain CRADA payments constituted
wire fraud, in violation of 18 U.S.C. § 1343.3
All three defendants filed a number of pretrial
motions, including several different motions to dismiss
the indictment and a motion to suppress evidence that
was seized pursuant to a search warrant that Special
Agent Leonard obtained during his investigation. The
presiding judge, Senior United States District Judge
C. Weston Houck denied all of those motions.
The Corporate Defendants and Dr. Dong were
tried together by a jury in 2014. The jury returned a
3 Counts Two through Six and Eight through Twelve were dismissed before trial.
App.10a
guilty verdict against GenPhar as to Counts Seven
and Thirteen through Thirty-Four; and against Vaxima
as to Counts Seven, Thirteen through Fifteen, and
Seventeen through Thirty-Four. The jury hung as to
the remaining counts against the Corporate Defendants, and as to all counts against Dr. Dong. Judge
Houck, who presided over the trial, declared a mistrial.
Shortly thereafter, the case was transferred to
United States District Judge David C. Norton. The
parties elected to have the retrial via a bench trial. In
doing so, they waived their right to have Judge Norton
issue written findings of fact, asking that he instead
utilize a general verdict form. See Fed. R. Crim. P. 23(c).
Judge Norton found GenPhar guilty of the conspiracy
charge in Count One, and found Vaxima guilty of both
the conspiracy offense in Count One and the outstanding wire fraud charge alleged in Count Sixteen. He
also found Dr. Dong guilty of all counts.
Judge Norton then recused himself after the
bench trial but before sentencing. The case was then
transferred to United States District Judge Bruce H.
Hendricks. The Corporate Defendants and Dr. Dong
filed another litany of post-trial motions for a new
trial, for a judgment of acquittal, and to dismiss the
indictment, all of which were denied. Relevant here,
Judge Hendricks imposed a fine of $6,423,199.66, and
a monetary forfeiture judgment against each defendant
jointly and severally in the amount of $3,211,599.83,
the amount of CRADA funds unlawfully used for both
political lobbying and constructing the GenPhar
Property.
The Corporate Defendants timely filed a notice of
appeal, making our jurisdiction proper under 18 U.S.C.
§ 3742 and 28 U.S.C. § 1291.
App.11a
III.
The Corporate Defendants’ arguments on appeal
concern the district court’s rulings on pretrial matters;
issues arising during and after trial; and purported
deficiencies in the district court’s forfeiture order.
They also assert that their convictions and sentences
must be reversed because both Judges Norton and
Hendricks failed to recuse themselves in the face of
alleged conflicts of interest. We address each category
of claims in turn.
A.
Beginning with the Corporate Defendants’ challenges to the district court’s pretrial rulings, they
claim that the district court erred by denying their
pretrial motions to dismiss the indictment, as well as
their various motions to suppress evidence. Finding
no merit in any of these arguments, we affirm.
1.
The Corporate Defendants argue that the district
court should have granted their motion to dismiss the
TSI because it failed to allege an offense. See Fed. R.
Crim. P. 12(b)(3)(B)(v). We review this claim de novo.
United States v. Kingrea, 573 F.3d 186, 191 (4th Cir.
2009).
In order to adequately allege an offense, an
indictment “must contain the elements of the offense
charged, fairly inform a defendant of the charge, and
enable the defendant to plead double jeopardy as a
defense in a future prosecution for the same offense.”
Id. (citation omitted); see Fed. R. Crim. P. 7(c)(1). An
indictment may also be legally insufficient if the facts
App.12a
alleged, even when taken as true, would not constitute
a federal crime. United States v. Thomas, 367 F.3d 194,
197 (4th Cir. 2004). Having reviewed the TSI with
“heightened scrutiny,” Kingrea, 573 F.3d at 191, we
are satisfied that it adequately alleged the elements
of each offense and contained sufficient factual allegations to inform the Corporate Defendants of the nature
of the charges against them.
The Corporate Defendants primarily argue that
the conduct underlying the TSI’s offenses cannot be
crimes; their conduct amounted, at most, to a breach
of contract. They posit that this should have been a
civil case, as there is no statute criminalizing fraud in
the administration of CRADAs. We agree with the district court, however, that the various federal criminal
statutes relating to fraud broadly apply to a plethora
of fraud schemes, and properly encompass the conduct
the Corporate Defendants were accused (and ultimately
convicted) of here.
The Corporate Defendants also argue that Count
Seven failed to allege an offense because, even accepting
its allegations as true, there could be no theft of
Government property. Specifically, they posit that the
money held by the NIH, and paid to GenPhar, lost its
federal character immediately upon payment. For the
reasons explained by the district court, we conclude
that the numerous supervision, reporting, and auditing
requirements imposed in the CRADA process are
sufficient to allege retention of Governmental control
over those funds, making them the proper subject of
an 18 U.S.C. § 641 offense. Gov‘t Supp. J.A. 1653–54.
We therefore affirm the denial of the Corporate
Defendants’ pretrial motions to dismiss.
App.13a
2.
Next, the Corporate Defendants claim that Special
Agent Leonard’s involvement in this case violated the
Posse Comitatus Act (“PCA”), which provides:
Whoever, except in cases and under circumstances expressly authorized by the Constitution or Act of Congress, willfully uses any
part of the Army or the Air Force as a posse
comitatus or otherwise to execute the laws
shall be fined under this title or imprisoned
not more than two years, or both.
18 U.S.C. § 1385 (2012).4 They ask us to either (1)
suppress the evidence obtained pursuant to a search
warrant that he obtained during his investigation, or
(2) vacate their convictions.
Neither remedy is warranted in this case because
there was no PCA violation. By statute, Congress has
clarified that “[t]he provisions of [the PCA] shall not
apply to audits and investigations conducted by . . . the
Inspector General of the Department of Defense,”
the precise agency to which Special Agent Leonard
belonged. 5 U.S.C. app. § 8(g) (emphasis added). That
is in part because, again by statute, Congress bars any
“member of the Armed Forces, active or reserve,” from
being appointed Inspector General of the Department of
Defense. Id. § 8(a). There simply is no PCA issue here.
But even if there was a PCA violation, neither of
the Corporate Defendants’ requested remedies are
4 The PCA has since been amended to also reference the Navy,
Marine Corps, and Space Force. See National Defense
Authorization Act for Fiscal Year 2022, Pub. L. No. 117-81, div.
A, tit. X, § 1045(a), 135 Stat. 1541, 1904–05.
App.14a
available to them. See United States v. Johnson, 410
F.3d 137, 149 (4th Cir. 2005) (holding that, absent
special circumstances not present in this case, “the
exclusionary rule is [generally] not a remedy for violations of the [Act]” (citation omitted) (second alteration in
original)); United States v. Dong, 731 F. App’x 180,
182 (4th Cir. 2018) (per curiam) (“By its terms, the
remedy for a violation of the PCA is not to dismiss the
criminal charges against the offender or reverse his
convictions but to hold the transgressor criminally
liable.”). We thus affirm the district court’s rejection of
the Corporate Defendants’ PCA arguments made before
and after trial.5
B.
Moving to the Corporate Defendants’ trial-related
claims, they argue that there was insufficient evidence
to support their convictions. Convictions stemming
from either a bench or jury trial “must be upheld
if, when viewing the evidence and all reasonable
inferences therefrom in the light most favorable to the
Government, there is substantial evidence to support
them.” United States v. Simmons, 11 F.4th 239, 270
5 The Corporate Defendants also argue that the district court
erred in rejecting their substantive challenges to the sufficiency
of Special Agent Leonard’s affidavit supporting the search
warrant application. In addition to challenging the affidavit’s
signature requirement, statement of probable cause, and the
particularity with which the affidavit describes the places to be
searched and things to be seized, they claim that Special Agent
Leonard knowingly utilized false information in that affidavit, in
violation of Franks v. Delaware, 438 U.S. 154 (1978). Having
reviewed the affidavit itself, the district court’s relevant findings,
Defs.’ 2d Supp. J.A. 193–95, and the arguments presented on
appeal, we discern no merit in any of these claims.
App.15a
(4th Cir. 2021) (citation and internal quotation marks
omitted); see United States v. Armel, 585 F.3d 182, 184
(4th Cir. 2009) (applying these standards to bench
trials). Because the parties waived their right to a
written finding of facts from Judge Norton, who
presided over their bench trial, “[i]t follows that we
must assume that the trial court found in favor of the
Government with respect to each and every” element
of the relevant offenses. Lustiger v. United States, 386
F.2d 132, 135 (9th Cir. 1967).
Beginning with Count One, the conspiracy claim,
the Government had to prove (1) an agreement
between multiple co-conspirators (2) to defraud the
United States, and (3) an overt act by one of the
conspirators in furtherance of the agreement. United
States v. Gosselin World Wide Moving, N.V., 411 F.3d
502, 516 (4th Cir. 2005); see 18 U.S.C. § 371. Relevant
here, “[t]he actions of two or more agents of a corporation, conspiring together on behalf of the corporation,
may lead to conspiracy convictions of the agents
. . . and of the corporation.” United States v. Peters,
732 F.2d 1004, 1008 (1st Cir. 1984). Upon review of
the evidence introduced during the bench trial, we are
satisfied that there was substantial evidence to support the district court’s finding that Vaxima and
GenPhar, through the acts of its agents, Dr. Dong and
Dr. Wang, agreed and intended to defraud the United
States and committed numerous overt acts in furtherance of that agreement.
Turning to Count Seven––theft of Government
property––the Government had to prove that “(1) the
[Corporate Defendants] stole, fraudulently received,
or converted to [their] own use (2) money of the
United States (3) with the intent to permanently or
App.16a
temporarily deprive the [G]overnment of that money.”
United States v. Hamilton, 699 F.3d 356, 363 (4th Cir.
2012); see 18 U.S.C. § 641. As a general principle,
despite the fact that GenPhar and Vaxima are corporations, they may be held criminally liable for the acts
of their agents and employees “done within the scope
of their employment with the intent to benefit the corporation.” Mylan Lab’ys, Inc. v. Akzo, N.V., 2 F.3d 56,
63 (4th Cir. 1993).
Count Seven specifically related to a $955,085.51
request for payment under GenPhar’s CRADA with
the NIH for the time period of July 1, 2008, through
September 30, 2008, which certified to the NIH that
GenPhar incurred those costs “for the purpose and
conditions of the grant or agreement.” Gov’t Supp. J.A.
539. Part of that money, the CRADA specified, was to
be used by GenPhar to purchase a $233,900 piece of
equipment. However, a GenPhar employee testified
that GenPhar did not purchase that equipment; it
simply retained that money for its own use. Moreover,
under the governing legal principles identified by
Judge Houck in his earlier ruling on the Corporate
Defendants’ motion to dismiss the indictment, see Gov’t
Supp. J.A. 1650–54, there is substantial evidence to
support Judge Norton’s finding that the NIH funding
at issue retained its federal character even after being
transferred to GenPhar. Sufficient evidence therefore
supports the § 641 conviction.
Finally, as to the wire fraud convictions in Counts
Thirteen through Thirty-Four, the Government was
required to prove (1) the existence of a scheme to
defraud the Government and (2) that the Corporate
Defendants used the wires to further that scheme.
United States v. Jefferson, 674 F.3d 332, 366 (4th Cir.
App.17a
2012); see 18 U.S.C. § 1343. The records developed
during both the jury and bench trials provide sufficient
evidence for the relevant factfinders to conclude that
for each instance listed in the TSI, the Corporate
Defendants (through their agents and employees)
made false statements to federal agencies to induce
those agencies to pay them money through use of the
wires. We therefore affirm the Corporate Defendants’
convictions in toto.6
C.
We proceed now to the Corporate Defendants’
challenges to their sentences, which exclusively focus
on the district court’s forfeiture order. See Libretti v.
United States, 516 U.S. 29, 38–39 (1995) (“Forfeiture
is an element of the sentence imposed following conviction[.]”). First, citing Apprendi v. New Jersey, 530
U.S. 466 (2000), they argue that the forfeiture order
was imposed in violation of their Sixth Amendment
right to a jury trial. Second, they claim that there was
no statutory authority for the district court’s
forfeiture order. Lastly, they posit that the forfeiture
order must be vacated in light of the Supreme Court’s
decision in Honeycutt v. United States, 137 S. Ct. 1626
(2017). We address each claim in turn.
6 The Corporate Defendants further posit that their convictions
must be vacated because the Government (1) constructively
amended the TSI through its presentation of evidence at trial, (2)
failed to disclose material exculpatory and/or impeachment evidence, in violation of Brady v. Maryland, 373 U.S. 83 (1963), and
(3) knowingly presented false evidence at trial, in violation of
Napue v. Illinois, 360 U.S. 264 (1959). After thoroughly reviewing
the record and the Corporate Defendants’ extensive arguments
on appeal, we discern no merit in these claims.
App.18a
1.
In Apprendi, the Supreme Court held that “[o]ther
than the fact of a prior conviction, any fact that
increases the penalty for a crime beyond the prescribed
statutory maximum must be submitted to a jury, and
proved beyond a reasonable doubt.” 530 U.S. at 490.
Relying on this maxim and the Supreme Court’s decision in Southern Union Co. v. United States, 567 U.S.
343 (2012), the Corporate Defendants argue that the
forfeiture order here violates the Sixth Amendment
because the district judge––not the jury––made all of
the relevant factual findings. As we explained in
United States v. Day, 700 F.3d 713 (4th Cir. 2012),
however, this argument lacks merit. “[N]o statutory
or other maximum limits the amount of forfeiture, [so]
a forfeiture order can never violate Apprendi,” and
“the Supreme Court’s decision in Southern Union [did
not] change this fact.” Id. at 732–33 (citation and
internal quotation marks omitted).
2.
The Corporate Defendants next assert that there
was no statutory basis for the district court’s forfeiture
order. Our de novo review of this issue, see United
States v. Martin, 662 F.3d 301, 306 (4th Cir. 2011),
leads us to reject this contention.
Pursuant to 28 U.S.C. § 2461(c), if a defendant is
accused of a crime “for which the civil or criminal
forfeiture of property is authorized,” then “the Government may include notice of the forfeiture in the
indictment.” If the defendant is convicted, then “the
court shall order the forfeiture of the property as part
of the sentence.” Id. (emphasis added).
App.19a
Relevant here––and as specified in the TSI––one
statute providing for the civil forfeiture of property is
18 U.S.C. § 981. Among other subsections, § 981(a)
(1)(C) permits the forfeiture of “[a]ny property, real or
personal, which constitutes or is derived from proceeds
traceable to a violation of . . . any offense constituting
‘specified unlawful activity’ (as defined in section
1956(c)(7) of this title), or a conspiracy to commit such
offense.” Id.
The relevant offenses of conviction here all fall
within § 981(a)(1)(C). The offenses in Count Seven
(theft of Government property, 18 U.S.C. § 641) and
Counts Thirteen through Thirty-Four (wire fraud, 18
U.S.C. § 1343) are explicitly included in the definition
of “specified unlawful activity” set forth in 18 U.S.C.
§ 1956(c)(7). And Count One alleged “a conspiracy to
commit such offense[s].” § 981(a)(1)(C). Accordingly,
we are satisfied that there was a statutory basis for
the forfeiture order.
3.
Next, GenPhar argues that the forfeiture order
entered against it and Dr. Dong violates the rule
announced by the Supreme Court in Honeycutt.
Limiting our analysis only to GenPhar, we discern no
valid basis for vacating the forfeiture order.7
7 The Corporate Defendants’ consolidated Opening and Reply
Briefs focus exclusively on how Honeycutt’s holding applies to the
forfeiture orders entered against GenPhar and Dr. Dong. E.g.,
Opening Br. 154 (“Honeycutt and the subsequent rulings by this
Court apply precisely to the instant case, because [1] there is no
asset or proceeds obtained by GenPhar or Dr. Dong through a
crime; [and] [2] neither GenPhar nor Dr. Dong actually acquired
App.20a
In Honeycutt, the Supreme Court unanimously
held that 21 U.S.C. § 853(a)(1) does not permit district
courts to impose forfeiture orders under a joint and
several liability theory. 137 S. Ct. at 1632–33. Instead,
the Court explained, the statute requires proof that a
defendant personally obtained the assets to be forfeited.
Id. at 1633.
The forfeiture order in this case was not entered
pursuant to § 853(a). Rather, as detailed previously,
the forfeiture order against GenPhar was entered pursuant to 18 U.S.C. § 981(a)(1)(C), as incorporated by
28 U.S.C. § 2461(c). GenPhar argues that Honeycutt’s
logic extends to these provisions, and requires that
any property as the result of the ‘using contract funds for purposes inconsistent with the terms and conditions[.]’”); Reply Br.
41–42 (“The Government failed to prove that GenPhar actually
obtained any funds or property through a crime, and failed to
prove the prerequisite nexus between GenPhar’s research facility
to a crime.”). Because Dr. Dong is not a party to this appeal, we
have no occasion to consider how Honeycutt’s rule might apply to
him.
As to Vaxima, the Corporate Defendants’ consolidated briefing
on this issue never once mentions it, let alone discusses how
Honeycutt applies to Vaxima. Accordingly, Vaxima has forfeited
appellate review of this issue. See Grayson O Co. v. Agadir Int’l
LLC, 856 F.3d 307, 316 (4th Cir. 2017) (“A party waives an argument by failing to present it in its opening brief or by failing to
develop its argument—even if its brief takes a passing shot at
the issue.” (cleaned up) (quoting Brown v. Nucor Corp., 785 F.3d
895, 923 (4th Cir. 2015)); see also United States v. Caldwell, 7
F.4th 191, 207 n.13 (4th Cir. 2021) (applying this rule to a criminal
case); United States v. Stewart, 765 F. App’x 915, 919 n.2 (4th
Cir. 2019) (per curiam) (holding that one defendant, Grant,
waived appellate review of an issue that both he and his codefendant, Stewart, raised before the district court because their
consolidated opening brief “only advance[d] Stewart’s argument”).
App.21a
the forfeiture order entered against it be vacated because the district court utilized a joint and several
liability theory.
Assuming, without deciding, that Honeycutt’s rule
applies to § 981(a)(1)(C) forfeiture orders, it is nonetheless evident from the record established at both
trials that GenPhar itself obtained the entirety of the
proceeds constituting the forfeiture money judgment.
See Fed. R. Crim. P. 32.2(b)(1)(B) (“The court’s [forfeiture] determination may be based on evidence already
in the record[.]”). Several witnesses, including Dr.
Wang, Elaine Van Voris (one of GenPhar’s accountants),
and the Government’s accounting expert, Vaughn,
testified that CRADA funds were deposited into a
single GenPhar account that was used to both receive
money and make payments. The district court received
similar testimony from Vaughn during a hearing on
the forfeiture issue. Thus, in order to find that there
were forfeitable “proceeds” from the Corporate Defendants’ offenses, the district court necessarily had to find
as fact, and ultimately found, that GenPhar “[came]
into possession of” or “acquire[d]” the proceeds of the
offenses of conviction. Honeycutt, 137 S. Ct. at 1632
(citation omitted). We therefore affirm the district
court’s forfeiture order as to GenPhar for the full
amount of the proceeds of the offenses of conviction,
even under the guise of joint and several liability.8
8 GenPhar also argues that there was insufficient evidence
underlying the district court’s determination of the amount of
forfeitable “proceeds,” and that the district court clearly erred in
determining the value of the GenPhar Property, which was
forfeited as substitute property. Having reviewed these arguments and the record on appeal, we discern no reversible error.
App.22a
D.
Finally, the Corporate Defendants lodge a general
attack on their convictions stemming from the bench
trial before Judge Norton, and the sentences imposed
by Judge Hendricks, because both judges allegedly
failed to recuse themselves in the face of known
conflicts of interest.
For the reasons stated by the district court, we
hold that Judge Norton did not violate 28 U.S.C.
§ 455(a) by failing to recuse himself earlier in the proceedings. See Defs.’ 2d Supp. J.A. 1484–85. And
assuming that the claims vis-à-vis Judge Hendricks
are properly preserved for appellate review, the Corporate Defendants have failed to meet their burden to
show that Judge Hendricks’ impartiality could have
been reasonably questioned. Accordingly, we discern
no error.
IV.
For the foregoing reasons, the judgment of the
district court is
AFFIRMED.
App.23a
JUDGMENT OF THE UNITED STATES COURT
OF APPEALS FOR THE FOURTH CIRCUIT
(FEBRUARY 28, 2022)
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
________________________
UNITED STATES OF AMERICA,
Plaintiff -Appellee,
v.
VAXIMA, INC.,
Defendant-Appellant.
________________________
No. 17-4277 (L)
(2:11-cr-00511-BHH-2)
________________________
UNITED STATES OF AMERICA,
Plaintiff -Appellee,
v.
GENPHAR, INC.,
Defendant-Appellant.
________________________
No. 17-4278 (L)
(2:11-cr-00511-BHH-3)
App.24a
In accordance with the decision of this court, the
judgment of the district court is affirmed.
This judgment shall take effect upon issuance of
this court's mandate in accordance with Fed. R. App.
P. 41.
/s/ Patricia S. Connor
Clerk
App.25a
FORFEITURE ORDER OF THE
UNITED STATES DISTRICT COURT
OF SOUTH CAROLINA
(APRIL 27, 2017)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
________________________
UNITED STATES OF AMERICA,
v.
JIAN-YUN DONG, a/k/a JOHN DONG,
GENPHAR, INC., VAXIMA INC.,
________________________
No. 2:11-cr-00511-DCN
Before: Bruce Howe HENDRICKS,
United States District Judge
This matter is before the Court on two motions
for Preliminary Orders of Forfeiture (“POFs”), (ECF
Nos. 593; 793), filed by the United States of America
(“the Government”) in the instant criminal action, the
Government’s amended motion to hold the forfeiture of
substitute assets in abeyance (ECF No. 656), and
Defendant Jian-Yun Dong’s motion to stay the forfeiture
order pending appeal (ECF No. 811). In light of the
evidentiary record, and for the reasons set forth below,
the Court GRANTS IN PART the Government’s first
POF motion, (ECF No. 593), insofar as it pertains to
the imposition of a forfeiture money judgment and the
forfeiture of the GenPhar Property. The Court GRANTS
App.26a
IN PART the second POF motion, (ECF No. 793), and
restrains the SunTrust Accounts to potentially be
forfeited as substitute assets at a later date. The Court
further GRANTS the Government’s amended motion
to hold the forfeiture of substitute assets in abeyance,
(ECF No. 656). Finally, the Court DENIES Dong’s
motion to stay the forfeiture order, (ECF No. 811).
I.
Background
On April 16, 2013, a multi-count Third Superseding Indictment (“Third SSI”) was filed charging
Defendants Jian-Yun Dong, GenPhar, Inc., and Vaxima,
Inc. (“Defendants”) with, inter alia, Conspiracy to
Defraud the United States, in violation of 18 U.S.C.
§ 371 (Count 1); Theft of Government Property, in
violation of 18 U.S.C. § 641 (Count 7); and Wire Fraud,
in violation of 18 U.S.C. § 1343 (Counts 13-34). (ECF
No. 281.)
The Government’s prosecution was based upon
evidence that Defendants misappropriated federal
grant funds earmarked for research, by diverting such
funds into non-allowable expenditures primarily for
construction of a research facility (the “GenPhar
building”) on the “GenPhar Property”,1 and for certain
lobbying costs and other costs. A jury trial and
subsequent bench trial resulted in guilty verdicts
1 The GenPhar Property is located at 1200 Innovation Way, Mount
Pleasant, South Carolina. It is also referenced as “South Morgan
Point Road” in the first restraining order (ECF 255 at 9) and
Third SSI (ECF 281 at 29). However, because of the primary
building’s location on the property, the intersecting street,
“Innovation Way”, is now the designated street address for the
property. See First Restraining Order (ECF No. 255 at 3, n.1);
and Government’s first POF Motion (ECF No. 593-7 at 4, n.4.)
App.27a
against Defendants on all of the previously referenced
charges. (ECF Nos. 489-90; 556-58.)
Pursuant to Fed. R. Crim. P. 32.2(a), the Third
SSI contains a notice of forfeiture alleging that upon
conviction, certain listed property, or equivalent substitute assets, would be subject to forfeiture to the
United States. (ECF No. 281 at 28-37.) Pursuant to
Rule 32.2(b)(1)(A), the forfeiture notice also includes a
request for a forfeiture money judgment (“money judgment”) against Defendants, representing proceeds of
the offenses of conviction. Although the amount of the
proposed money judgment in the Third SSI is
$3,622,849.14, (ECF 281 at 29), the Government has
since reduced that amount to $3,211,599.83. (ECF No.
593 at 3.)
In November 2012, pursuant to 21 U.S.C.
§ 853(e)(1)(A), Judge Houck issued an order (the “First
Restraining Order”) restraining various properties
listed in the Third SSI. (ECF No. 255.) He ordered the
restraint of, inter alia, all real property in which
Defendants may have an interest, up to the value of
$3,622,849.14 (including both directly forfeitable
property (i.e., “proceeds”) and substitute assets). (Id.
at 14-15.) Judge Houck also required that the property
owners maintain the present condition of any real
property subject to the order, and make timely mortgage
and tax payments. (Id. at 15.) In issuing the restraining
order, Judge Houck rejected Defendants’ contentions
that the GenPhar Property was worth more than
$1,560,000. (Id. at 6.)
Relevant here, the Government has filed two
motions for Preliminary Orders of Forfeiture, (ECF
Nos. 593; 793), seeking the forfeiture of real and
personal property in which Defendants currently or
App.28a
formerly had an interest. The Government also seeks
imposition of a money judgment against Defendants
in the amount of $3,211,599.83, representing the gross
proceeds of the offenses of conviction (and equaling
the amount of loss as currently determined by United
States Probation). The Government seeks to forfeit
the GenPhar Property under 18 U.S.C. § 981(a)(1)(C),
as directly forfeitable property constituting or derived
from proceeds traceable to the counts of conviction
(i.e., as “proceeds”). In the alternative, the Government seeks forfeiture of the GenPhar Property under
21 U.S.C. § 853(p)(2), as a substitute asset.2 (ECF 593
at 3-5.)
The Government maintains that it has met the
statutory predicates for forfeiture of this property as
a substitute asset. The Government argues, inter alia,
that Defendants have engaged in prohibited acts or
omissions under 21 U.S.C. § 853(p)(1) resulting in substantial liens on the GenPhar Property, rendering it
effectively unavailable for purposes of forfeiture; and,
that Defendants commingled grant funds and nongrant funds, then routed such commingled funds
through multiple accounts, thereby making tracing of
the grant funds into other specific property timeconsuming, resource-intensive, inordinately expensive,
and, ultimately, likely futile.
Because of uncertainties in the value of the GenPhar Property, the Government also moves to hold the
forfeiture of the remaining property in abeyance, until
2 See United States v. Smith, 770 F.3d 628, 642 (7th Cir. 2014)
(the government may argue that property is directly forfeitable
or, in the alternative, that it is a substitute asset, and the court
may enter an order forfeiting the property under both theories).
App.29a
such time as the Government is in a position to know
the amount of net forfeiture proceeds,3 if any, realized
from the forfeiture and sale of the property. (ECF No.
656). The Government points to the widely conflicting
appraisals submitted in this case,4 and the substantial liens currently associated with the property.5
Based upon these factors, the Government argues
that if the GenPhar Property is forfeited, there is substantial uncertainty as to how much, if anything, may
ultimately be realized from its sale. The Government
notes that if the net forfeiture proceeds were sufficient to
satisfy the money judgment, there would be no need to
forfeit other assets. The Government’s related concern
is that the remaining substitute property should
continue to be restrained. The Government argues
3 The “net forfeiture proceeds” would generally be the amount of
funds available to the United States from the sale of the GenPhar
Property, after deducting the value of any ancillary claims which
are determined to be superior to the United States’ interest under
21 U.S.C. § 853(n)(6), and after deducting statutory costs of the
United States Marshals Service under 21 U.S.C. § 881(e)(2)(A).
4 The most recent appraisal submitted by the Government
estimates that the fair market value (“FMV”) of the GenPhar
Property “as-is” is $1,200,000, and recommends that the research
facility be torn down because of construction defects and other
problems. The appraisal submitted by Defendants gives an “asis” FMV of $9,000,000, with a higher hypothetical FMV upon
completion of the research facility.
5 The Government has submitted two mortgages against the
GenPhar Property: a mortgage involving Rentec Management
Systems as mortgagee, (the “Rentec mortgage”) dated July 15,
2011, in the amount of $250,000, signed by the Chief Operating
Officer of GenPhar (ECF No. 606-9); and the mortgage involving
Mandra Applied Materials, Ltd., as mortgagee, (the “Mandra
mortgage”) dated December 20, 2013, in the amount of
$4,647,917.90, signed by John Dong, (ECF No. 606-4).
App.30a
that if such property were to be returned to defendants at this time, and the net forfeiture proceeds from
the sale of the GenPhar Property were insufficient to
satisfy the money judgment, the Government would be
left without recourse to pursue forfeiture of the other
property, because, having been returned to Defendants,
such property would likely have been dissipated, or
otherwise be unavailable.
Defendants oppose forfeiture,6 and oppose holding
the forfeiture of substitute assets in abeyance. (See
ECF Nos. 608; 612; 811.) Defendants assert their
innocence, contending that only non-grant funds were
used to construct the research building on the GenPhar
Property. Relatedly, Defendants urge that even if
grant funds were used for this purpose, their actions
were not criminal, but were, at most, in the nature of
civil contractual disputes over the appropriate use of
federal grant funds. Defendants also contend that the
involvement of one of the case agents, former Special
Agent Larry Leonard, with the Defense Criminal Investigative Service, was a violation of the Posse Comitatus
Act, thereby justifying dismissal of the entire case and
related forfeiture. (ECF No. 634 at 7.)
Regarding the abeyance issue, Defendants maintain that the value of the GenPhar Property is more
than sufficient to satisfy the proposed FMJ, and that
forfeiture of substitute assets is therefore unnecessary. Defendants therefore seek the return of the
6 Since the filing of the Government’s first POF motion, the
parties have filed multiple pleadings related to disputes over
forfeiture and restraint of property. Although the Court has
thoroughly considered all such pleadings and arguments, the
Court will not review and summarize them all here.
App.31a
other currently restrained substitute assets. (ECF Nos.
603; 614 at 2).
Relatedly, Defendants contend that the mortgages
on the property could not prevail as ancillary claims
under 21 U.S.C. § 853(n)(6).7 Defendants further
contend that the “Rentec” mortgage, (ECF No. 606-9),
in the amount of $250,000, has been effectively
extinguished by the Stipulation of Dismissal, (ECF
No. 107), filed in the case of SCBT, N.A. v. GenPhar
Inc., et al., Civ. No. 2-11-2532-RMG. However, review
of the filings in that case reveals that the only
mortgage extinguished in that litigation was that of
South Carolina Bank & Trust (ECF No. 1-1 at 18-27),
not the Rentec mortgage.
Pursuant to Fed. R. Crim. P. 32.2(b)(1)(B), the Court
held a hearing on the Government’s POF motions on
April 21, 2017. The hearing elicited the following testimony from the parties’ witnesses:
Jonathan Vaughn, the Government’s auditing
expert, testified that the amount of grant funds misdirected into the construction of the GenPhar building
was $2,903,537.83. He further testified that, because
of Defendants’ commingling of grant funds and nongrant funds, coupled with Defendants’ routing of such
commingled funds through multiple accounts, any
effort to trace grant funds into other specific property
of the defendants, for the purpose of determining
whether such property constitutes proceeds of the
7 The Court observes that the opportunity to file such third-party
claims is reserved for the process of ancillary proceedings, which
have not yet begun. Accordingly, it would be inappropriate at this
juncture for the Court to opine regarding whether, and by whom,
ancillary petitions may be filed, or the likelihood of their success.
App.32a
offenses, would be extremely time-consuming, resourceintensive, and, in the end, likely futile.
Jeff Ball, Commercial Plans Examiner for the
Town of Mt. Pleasant, testified for the Government,
inter alia, that because the GenPhar building is the
subject of multiple building code violations, some of
which are serious, Mt. Pleasant has not issued a
Certificate of Occupancy for the building, and will not
do so unless the violations are corrected.
Michael Nelson, a Deputy U.S. Marshall specialized in locating potentially forfeitable property, testified for the Government that he made substantial
efforts to locate property of the defendants beyond
that already restrained, but was unable to find
anything beyond a boat of questionable value.
Marshall Smith, Special Agent with the Criminal
Investigation Division of the SCDOR, testified that
SCDOR has levied $112,032.86 in tax liens against
the GenPhar Property, based upon GenPhar’s failure
to file returns related to South Carolina’s use tax and
employer withholding tax.
Bradley Belcher, the appraiser for the Government, testified, inter alia, that the as-is FMV of the
GenPhar property is $1,200,000; that such value does
not take into account third-party liens; and, that the
highest and best use of the property would be to raze
the GenPhar building. He could not opine on how
much the construction costs would be to remediate the
building code violations.
Appraiser Gary Schwab testified for Defendants
that, although he had previously appraised the property
with an as-is FMV of $9,000,000, he was not aware at
that time of the various building code violations, and
App.33a
that Defendant Dong had advised him that the only
costs for remediation would be for replacement of
broken windows, and for repairs for cosmetic damages. He testified that his appraised value did not take
into account the existing liens on the property. He also
could not opine on how much the construction costs
would be to remediate the building code violations.
During the hearing, GenPhar’s counsel made the
Court aware of an interested buyer in attendance who
had made an offer of $1,700,000 to purchase the property.
II. Forfeiture Authorities and Legal Standards
A. Forfeiture
“A court must not enter a judgment of forfeiture
in a criminal proceeding unless the indictment or
information contains notice to the defendant that the
government will seek forfeiture of property as part of
any sentence in accordance with the applicable statute.”
Fed. R. Crim. P. 32.2(a). “[T]he court must determine
what property is subject to forfeiture under the applicable statute.” Fed. R. Crim. P. 32.2(b)(1)(A). If the
forfeiture is contested, the court must conduct a hearing
on either party’s request. Fed. R. Crim. P. 32.2(b)(1)(B).
“If the government seeks a personal money judgment, the court must determine the amount of money
that the defendant will be ordered to pay.” Fed. R.
Crim. P. 32.2(b)(1)(A). Generally, co-defendants are
jointly and severally liable for a forfeiture money judgment. United States v. Spano, 421 F.3d 599, 603 (7th
Cir. 2005) (all coconspirators are jointly and severally
liable for the amount of the forfeiture regardless of
App.34a
how much or how little they benefitted from the conspiracy).8 “In a multi-defendant case, each of the
defendants is jointly and severally liable for the
forfeiture of the proceeds of the offense or the money
otherwise involved in it.” Stefan D. Cassella, Asset
Forfeiture Law in the United States (2nd Ed.), p. 700
(footnote omitted).
The amount of the money judgment ultimately
imposed can differ from that listed in an indictment.
See United States v. Poulin, 690 F. Supp. 415, at 42223, 430 (E.D. Va. 2010) (although the indictment’s
forfeiture notice sought an FMJ of “at least $850,000”,
district court ordered FMJ exceeding $1.3 million)
(collecting cases).
The court’s forfeiture determinations are based
on evidence already in the record, and on any additional
evidence or information submitted by the parties and
accepted by the court as relevant and reliable. Fed. R.
Crim. P. 32.2(b)(1)(B). Because criminal forfeiture
proceedings are part of the sentencing phase, reliable
hearsay is admissible. United States v. Ali, 619 F.3d
713, 720 (7th Cir. 2010); United States v. Ivanchukov,
405 F. Supp. 708, 709 n.1 (E.D. Va. 2005).
“A district court may order the forfeiture of (1)
proceeds obtained as a result of the crime for which a
defendant was convicted or (2) property used or
intended to be used to commit or to facilitate the
commission of the crime for which a defendant was
convicted.” United States v. Herder, 594 F.3d 352, 3638 The issue of joint and several liability under Section 853 is currently pending before the Supreme Court. See Honeycutt v.
United States, Case. No. 16-142, filed August 1, 2016.
App.35a
64 (4th Cir. 2010) (citing 21 U.S.C. § 853(a)).9 The government has the burden of proof and must establish
that the property is subject to forfeiture by a preponderance of the evidence. Id. at 364. Section 853 “is
not limited to property that the defendant acquired
individually but includes all property that the defendant derived indirectly from those who acted in concert
with him in furthering the criminal enterprise.”
United States v. McHan, 101 F.3d 1027, 1043 (4th Cir.
1996).
Under Fed. R. Crim. P. 32.2(b)(1), the court is
required to determine whether the government has
“established the requisite nexus between the property
and the offense.” The Fourth Circuit utilizes the “substantial connection” standard under which “the government must establish that there was a substantial
connection between the property to be forfeited and
the offense.” Herder, 594 F.3d at 364. The government
must establish the requisite nexus by a preponderance
of the evidence, because forfeiture constitutes an aspect
of the sentence imposed, rather than a substantive
element of an offense. United States v. Neal, 2003 WL
24307070, at *2 (E.D. Va. 2003) (citing Libretti v. United
States, 516 U.S. 29, 39 (1995); United States v. Tanner,
61 F.3d 231, 235 (4th Cir. 1995)). The government
“may rely on circumstantial evidence to meet this burden
of proof.” United States v. Patel, 949 F. Supp. 2d 642,
648 (W.D. Va. 2013) (citing Herder, 594 F.3d at 364).
Where forfeiture is applicable, it is mandatory. 28
U.S.C. § 2461(c) states: “If the defendant is convicted of
the offense giving rise to the forfeiture, the court shall
9 28 U.S.C. § 2461(c) incorporates the provisions of 21 U.S.C.
§ 853 into all criminal forfeiture proceedings.
App.36a
order the forfeiture of property as part of the sentence
in the criminal case. . . . ” (emphasis added). “The
word ‘shall’ does not convey discretion. It is not a
leeway word, but a word of command.” United States
v. Blackman, 746 F.3d 137, 143 (4th Cir. 2014)
(interpreting Section 2461(c)). The order of forfeiture
must be included in the criminal judgment. Fed. R.
Crim. P. 32.2(b)(3).
Imposition of forfeiture is mandatory notwithstanding that restitution may also be required as part
of a criminal sentence. United States v. Bollin, 264
F.3d 391 (4th Cir. 2001) (defendant ordered to pay
$1.2 million forfeiture judgment and $783,000 in
restitution); United States v. O’Connor, 321 F.Supp.2d
722, 729 (E.D. Va. 2004) (forfeiture and restitution
serve different purposes; “forfeiture generally serves
to remove from an offender the fruits and instrumentalities of his crime, and thereby provides a powerful
disincentive to commit the crime in the first instance”;
restitution serves primarily to compensate the victim).
Defendants may not use forfeiture proceedings to
relitigate the legality of their conduct. See United
States v. Warshak, 631 F.3d 266, 331 (6th Cir. 2010)
(affirming district court’s refusal to let defendant
introduce evidence in forfeiture proceedings to show
that his conduct was not illegal; in the forfeiture
phase, the legality of the conduct “is no longer a live
issue”); see also Fed. R. Crim. P. 32.2(b)(1)(B) (forfeiture
determinations only take place after conviction).
18 U.S.C. § 981(a)(1)(C) provides, in pertinent
part, for the civil forfeiture of “[a]ny property, real or
personal, which constitutes or is derived from proceeds
traceable to a violation of . . . any offense constituting
‘specified unlawful activity’ (as defined in section
App.37a
1956(c)(7) of this title), or a conspiracy to commit such
an offense.” Although 18 U.S.C. § 981(a) is an
umbrella forfeiture statute that generally applies to
civil forfeitures, its provisions are incorporated into
criminal forfeitures by 28 U.S.C. § 2461(c), which
states, in pertinent part:
If a person is charged in a criminal case with
a violation of an Act of Congress for which
the civil or criminal forfeiture of property is
authorized, the Government may include
notice of forfeiture in the indictment or information pursuant to the Federal Rules of
Criminal Procedure.
“Section 2461 thus acts as a ‘bridge’ or ‘gap-filler’
between civil and criminal forfeiture, authorizing
criminal forfeiture when no criminal forfeiture provision
applies to the crime charged against a particular
defendant but civil forfeiture for that charged crime is
nonetheless authorized.” Blackman, 746 F.3d at 143
(certain internal quotation marks omitted).
As relates to the foregoing statutory provisions,
all of the counts of conviction are either specified
unlawful activities (“SUAs”), or a conspiracy related
thereto. Count 7 (Theft of Government Property)
charges a violation of 18 U.S.C. § 641, which is defined
as an SUA by 18 U.S.C. § 1956(c)(7)(D). Counts 13
through 34 (Wire Fraud) charge violations of 18 U.S.C.
§ 1343, which is defined as an SUA by 18 U.S.C.
§ 1956(c)(7)(A) (incorporating 18 U.S.C. § 1961(1)(B)).
Count 1 charges a conspiracy in violation of 18 U.S.C.
§ 371, the objects of which included the violations of
18 U.S.C. §§ 641 and 1343 contained at Counts 7 and
13-34. Accordingly, any property constituting or derived
App.38a
from proceeds traceable to the counts of conviction in
this case is subject to forfeiture.
B. Forfeiture of Substitute Assets
21 U.S.C. § 853(p) governs forfeiture of substitute
assets. As with direct forfeiture of proceeds, the government must show its entitlement to substitute assets
by a preponderance of the evidence. United States v.
Poulin, 690 F. Supp. 415, 421-22 (E.D. Va. 2010).
Section 853(p)(1)(A) states that “if any property
described in subsection (a) of this section, as a result
of any act or omission of the defendant—(A) cannot be
located upon the exercise of due diligence; (B) has
been transferred or sold to, or deposited with, a third
party; (C) has been placed beyond the jurisdiction of
the court; (D) has been substantially diminished in
value; or (E) has been commingled with other property
which cannot be divided without difficulty . . . the
court shall order the forfeiture of any other property
of the defendant, up to the value” of the property subject to forfeiture. The language of § 853(p) is “not discretionary; the statute mandates forfeiture of substitute assets when the tainted property has been placed
beyond the reach of a forfeiture.” United States v.
Alamoudi, 452 F.3d 310, 314 (4th Cir. 2006) (internal
quotation marks omitted).
“Because criminal forfeiture is remedial in nature,
section § 853 states that the forfeiture provisions its
provisions ‘shall be liberally construed’ in order to
effectuate this purpose.” Patel, 949 F. Supp. 2d at 649
(citing 21 U.S.C. § 853(o)). Applying this provision, the
Fourth Circuit held that the government’s “due diligence” showing was satisfied through the submission of
an affidavit of a case agent attesting that she had
App.39a
looked for directly forfeitable property, but could not
find any due to the acts or omissions of the defendant.
Alamoudi, 452 F.3d at 315.10 Moreover, a defendant’s
act in commingling tainted and untainted funds may
also trigger section 853(p). See United States v.
Swenson, 2014 WL 3748301, *9-10 (D. Idaho 2014) (if
defendant has caused the directly forfeitable proceeds
to be commingled, and an agent testifies that they
cannot be traced and separated without significant
effort and expense, the court may order the forfeiture
of substitute assets).
Additionally, although a defendant must have a
hand in the prohibited “act or omission” to trigger
section 853(p)(1)(A), there is no requirement that a
such act or omission involve obstructionist motives
(such as, for example, the intent to conceal property
from the government). See United States v. Jameel,
2014 WL 5317860, *2 (E.D. Va. 2014) (to the extent
the Government must show property was “unavailable”
to obtain a money judgment, it did so by showing property had so many liens on it the equity was zero);
United States v. Sokolow, 1995 WL 113079, *1 (E.D.
Pa. 1995) (where forfeitable property is diminished in
value due to defendant’s bad business investment,
forfeiture of substitute assets is appropriate; investment is an “act” of the defendant), aff’d, 81 F.3d 397
(3d Cir. 1996); United States v. Hovind, 305 Fed.
Appx. 615, 618-23 (11th Cir. 2008) (affirming forfeiture
of substitute assets where defendants transferred
10 In this case, the Government has submitted more than one
affidavit from Special Agent Leonard regarding his unsuccessful
efforts to locate property of the defendants constituting directly
forfeitable proceeds. See ECF Nos. 584-1 at 2-5; 597-3; 677-1.
App.40a
forfeitable assets associated with their offenses to
third parties and used them to pay business expenses).
The court may order the forfeiture of substitute
assets to satisfy a money judgment, where the money
judgment represents the value of the proceeds of the
offense that cannot be directly forfeited for one of the
reasons set forth in section 853(p)(1)(A). United States
v. Candelaria-Silva, 166 F.3d 19 (1st Cir. 1999) (once
the Government has obtained a forfeiture money judgment, it may forfeit defendant’s real property in
partial satisfaction of that judgment); United States v.
Davis, 177 F. Supp. 2d 470 (E.D. Va. 2001) (if property
cannot be forfeited as directly traceable to the offense,
it can be forfeited as a substitute asset and used to
satisfy the money judgment).
The “relation-back doctrine” of federal forfeiture
law, codified at 21 U.S.C. § 853(c), prevents criminal
defendants from defeating forfeiture simply by
transferring forfeitable property to third parties.11
Under the relation-back doctrine, the United States’
interest in such transferred property vests at the
moment of the “act giving rise to forfeiture.” § 853(c)
11 Section 853(c) states:
Third party transfers. All right, title, and interest in
[forfeitable property] vests in the United States upon
the commission of the act giving rise to forfeiture under
this section. Any such property that is subsequently
transferred to a third party . . . shall be forfeited to
the United States, unless the transferee establishes
in a hearing pursuant to subsection (n) that he is a
bona fide purchaser for value of such property who at
the time of such purchase was reasonably without cause
to believe that the property was subject to forfeiture
under this section.
App.41a
“This ‘relation-back’ provision enables the government
to reach forfeitable assets in the hands of third parties
at the time of conviction; it thus prevents defendants
from escaping the impact of forfeiture by transferring
assets to third parties.” In re Bryson, 406 F.3d 284,
291 (4th Cir. 2005) (certain internal quotation marks
omitted).
In the Fourth Circuit, these relation-back provisions apply with equal force to substitute assets, vesting
the government’s interest in substitute property at the
time of the offense:
Given that the purpose of the relation-back
provision in § 853(c) was to prevent defendants from escaping the impact of forfeiture
by transferring assets to third parties, and
the purpose of § 853(p) was similarly to
address this very impediment to significant
criminal forfeitures, the substitute property
that is subject to forfeiture under § 853(p)
must be read to include all property of the
defendant at the time of the commission of
the acts giving rise to the forfeiture.
United States v. McHan, 345 F.3d 262, 272 (4th Cir.
2003) (internal citations and punctuation omitted).12
If the conditions set forth in section 853(p)(1)
have been met, section 853(p)(2) mandates forfeiture
of any other property “of the defendant.” Determining
whether an asset is property “of the defendant” may
12 The continuing viability of McHan, or at least certain aspects
of that decision, are currently the subject of an appeal pending
before the Fourth Circuit. See United States v. William Todd
Chamberlain, Fourth Circuit Docket No. 16-4313. Regardless, at
this time, McHan remains the controlling law in the Fourth Circuit.
App.42a
require resort to state law defining ownership interests
in property. “[B]ecause forfeiture proceedings implicate
property rights which have traditionally been measured
in terms of state law, and because section 853 contains
no rule . . . , it is appropriate to refer to state law in a
forfeiture proceeding.” United States v. Smith, 966
F.2d 1045, 1054 n.10 (6th Cir. 1992) (certain quotation
marks omitted). Once the ownership interests are
defined under state law, however, the federal forfeiture statutes determine whether those property interests
must be forfeited to the Government. United States v.
Lester, 85 F.3d 1409, 1412 (9th Cir. 1996).
Although the provisions of 21 U.S.C. § 853 govern
forfeiture of property, they also are designed to ensure
the availability of potentially forfeitable property, in
part through the issuance of restraining orders,
seizure warrants, and other orders (§§ 853(e), (f), (g)).
Moreover, Congress has instructed that “[t]he provisions of [Section 853] shall be liberally construed to
effectuate its remedial purposes.” § 853(o). Additionally, Fed. R. Crim. P. 32.2(e)(1)(B) vests the court with
continuing jurisdiction over substitute assets.
Finally, although preponderance standard governs
forfeiture determinations, the “probable cause” standard
governs restraining orders. See United States v.
Monsanto, 491 U.S. 600, 615-16 (1989) (the standard
for issuing a restraining order is probable cause).
III. Discussion
A. Dong’s Motion to Stay Forfeiture
Dong moves the Court to stay the forfeiture order
pending appeal. (ECF No. 811.) Under Rule 32.2(d) of
the Federal Rules of Criminal Procedure, “[i]f a
App.43a
defendant appeals from a conviction or an order of
forfeiture, the court may stay the order of forfeiture
on terms appropriate to ensure that the property
remains available pending appellate review.” As evidenced by the text of Rule 32.2(d), a court is not
required to stay an order of forfeiture. District courts
have found that the following four factors should be
considered in determining whether a stay pending an
appeal of a forfeiture order should be granted: “(1) the
likelihood of success on appeal; (2) whether the
forfeited assets will depreciate over time; (3) the
forfeited assets’ intrinsic value to the defendant; and (4)
the expense of maintaining the forfeited property.”
United States v. Ngari, 559 Fed. Appx. 259, 272 (5th
Cir. 2014).
In his brief motion, Defendant makes no attempt
to address any of the above factors in seeking a stay.
Upon review, the Court finds that each of the factors
weighs against a stay. Specifically, the Court finds
that: (1) it is unlikely that Dong will succeed on appeal
as the trial was fairly conducted and the verdict was
fully supported by the evidence; (2) the GenPhar
building, the largest asset for forfeiture, has already
depreciated in value and the evidence indicates it will
continue to do so; (3) there is no intrinsic value to the
GenPhar building as construction was never completed
and it has never been occupied as a residence or business office; and (4) maintaining the GenPhar building
is a substantial expense and has already cost the U.S.
Marshal’s Service thousands of dollars. For these
reasons, the Court finds no basis to stay the forfeiture
pending appeal.
App.44a
B. Defendant’s Arguments Against Forfeiture
As previously noted, Defendants maintain that
they either did not use grant funds for non-allowable
purposes (i.e., for purposes not authorized under
grants), or that if they did, such use did not constitute
a criminal offense, but was instead merely a goodfaith dispute about the appropriate use of such funds.
However, the multiple guilty verdicts on the counts of
conviction refute Defendants’ contentions, and their
claims of innocence are no longer viable. As previously
noted, Defendants may not use forfeiture proceedings
to re-litigate the issue of guilt, which has already been
established as a matter of law in this case. Accordingly, the Court rejects these arguments as they relate to
forfeiture.
In addition, as a purported defense against
forfeiture (or restraint of property), Defendants argue
that Agent Leonard’s status with DOD-OIG constitutes
a violation of 18 U.S.C. § 1385, the “Posse Comitatus
Act” (“PCA”). (ECF Nos. 701 at 4; 739 at 9 13). However, Judge Houck previously rejected Defendants’ PCA
argument multiple times. Defendants filed their first
PCA motion to dismiss or suppress on March 30, 2014.
(ECF No. 404.) The Court denied the PCA motion on
September 11, 2014. (ECF No. 442.) Noting that the
Fourth Circuit has never countenanced dismissal or
suppression for an alleged PCA violation, Judge Houck
determined that it was unnecessary to reach the issue
of whether there was such a violation in this case.
(ECF No. 442 at 18.)
Approximately one month later, Defendants
renewed their motion (ECF 453), which was again
denied. (ECF 455.) Defendant Dong also unsuccessfully
raised the PCA issue in the campaign financing case.
App.45a
United States v. Dong, Case No. 2:11-510, ECF 325,
357. On July 18, 2016, Defendant Dong again made
the PCA argument in his motion seeking dismissal or
a new trial. (ECF Nos. 634 at 7; 637 at 10.)
In light of the prior rulings on this precise matter,
this Court concludes that it would not be appropriate
to reconsider an issue that has already been decided
multiple times against Defendants. Even if this Court
were to revisit the issue, it concludes that there is no
PCA violation here, and that even if there were, it
would not justify foreclosing the remedial remedy of
forfeiture.
The purpose of the PCA “is to uphold the American tradition of restricting military intrusions into
civilian affairs, except where Congress has recognized
a special need for military assistance in law enforcement.” United States v. Al–Talib, 55 F.3d 923, 929 (4th
Cir. 1995) (emphasis added; internal citation omitted).
The PCA prohibits using “the Army or the Air Force”
to execute the laws of the United States, and has since
been construed, together with 10 U.S.C. § 375,13 to
13 18 U.S.C. § 1385 states:
Whoever, except in cases and under circumstances
expressly authorized by the Constitution or Act of
Congress, willfully uses any part of the Army or the
Air Force as a posse comitatus or otherwise to execute
the laws shall be fined under this title or imprisoned
not more than two years, or both.
10 U.S.C. § 375 states, in relevant part:
The Secretary of Defense shall prescribe such regulations as may be necessary to ensure that any activity
. . . under this chapter does not include or permit direct
participation by a member of the Army, Navy, Air Force,
or Marine Corps in a search, seizure, arrest, or other
App.46a
extend to all active duty members of the armed forces.
See United States v. Khan, 35 F.3d 426, 431 (9th Cir.
1994).
The DCIS is a component of the DOD-OIG,
having been established by a 1982 amendment to the
Inspector General Act of 1978 (IG Act), 5 U.S.C. app.
3. Significantly, the DOD Inspector General is prohibited by statute from being in the armed forces. See 5
U.S.C. Appx. § 8(a) (“No member of the Armed Forces,
active or reserve, shall be appointed Inspector General
of the Department of Defense.”) This prohibition
thereby avoids any suggestion that the DOD-IG’s
civilian activities could be deemed to conflict with the
PCA’s restrictions on military involvement.
The DCIS has explicit authority to investigate
fraud involving the Department of Defense, such as
the offenses involved in this case. Congress has authorized the DODIG to investigate “fraud, waste and
abuse in the programs and operations of the Department.” 5 U.S.C. app. §§ 8(c)(1), (2) and (4). Importantly,
Congress has decreed that “[t]he provisions of [the
PCA] shall not apply to audits and investigations
conducted by, under the direction of, or at the request
of the Inspector General of the Department of Defense
to carry out the purposes of this Act.” 5 U.S.C. app. § 8(g).
Based upon these provisions, the Court concludes
that Agent Leonard’s involvement in this investigation
and prosecution did not constitute a violation of the
PCA, and that even if such a violation were to be
assumed, it would not provide any basis upon which
similar activity unless participation in such activity
by such member is otherwise authorized by law.
App.47a
to foreclose restraint or forfeiture of property in this
case.
C. Forfeiture Money Judgment
The Government’s Sentencing Memorandum
summarizes much of the salient trial testimony. (ECF
No. 761.) Such testimony and guilty verdicts establish
that Defendants misdirected federal grant funds
earmarked and restricted for research, by using such
funds for non-allowable purposes, including building
construction and lobbying expenses.
The trial record establishes that Defendants were
involved in research to combat various infectious
diseases. Defendants applied for and received federal
grants for this purpose. Defendants also received
private funding from third parties (“non-grant funds”).
Defendants decided to build the GenPhar building as
a large research and manufacturing facility. After
experiencing financial difficulties when the non-grant
funds were becoming depleted, Defendants turned to
grant funds to carry on with their construction plans.
Defendants used at least $2,903,537.83 in grant funds
for the construction of the GenPhar building. Defendants
misdirected at least another $308,062 in grant funds
for other non-grant purposes, including for lobbying
expenses, legal fees, consultants, and advertising/
marketing costs. (ECF No. 761-14.)
The Court concludes that the grant funds so misdirected constitute gross proceeds of the offenses of
conviction, subjecting Defendants to the imposition of
a money judgment in the amount of $3,211,599.83.
Property of Defendants, whether proceeds or substitute
assets, may be forfeited to satisfy the money judgment.
App.48a
D. Value of the GenPhar Property
The dispute over the value of the GenPhar Property has continued for several years. Faced with
similar assertions in 2012, Judge Houck rejected the
higher value proffered by Defendants, finding at that
time that the property was worth only $1,560,000 (not
taking then-existing liens into account). (ECF 255 at
7.) Faced with similar “high value” arguments from
defendants, this Court also declined to depart from that
lower valuation in a subsequently issued restraining
order. (ECF 658 at 4.) The GenPhar Property continues
to deteriorate, and has substantial code violations
related to serious construction defects. These factors
support a lower value. Moreover, at this time, the
“firm offer” tendered by one prospective purchaser is
only $1,700,000—again supporting the lower value.
Additionally, Defendants’ acts and/or omissions have
resulted in substantial additional debts related to the
property in the form of mechanic’s liens,14 tax liens,
and mortgage liens. Although Defendants may argue
that the mortgage debts will not survive the process
of ancillary hearings, the Court cannot divine the
future of such proceedings, nor offer predictions regarding the success or failure of any ancillary petitions
which have yet to be filed.
As previously noted, the valuation issue relates
to whether the Court should continue to restraint
Dong’s other property15 as substitute assets, and
whether to hold forfeiture of such property in abeyance
14 The unpaid mechanic’s liens in the record total $60,897.97.
(ECF No. 606-8 at 3.)
15 None of the remaining property currently under restraint is
titled to GenPhar.
App.49a
pending the resolution of the forfeiture and proposed
sale of the GenPhar Property. If, after resolution of
ancillary proceedings and issuance of a Final Order of
Forfeiture, the sale takes place, and the net forfeiture
amount realized therefrom is sufficient to satisfy the
money judgment, then forfeiture of the other substitute assets will be rendered moot. If insufficient, then
forfeiture of such substitute assets will become necessary—as will their continued restraint at this time.
Because of the uncertainty regarding the value of
the property, the Court will not depart from the prior
valuation as initially determined by Judge Houck. On
the related issue of whether the remaining substitute
assets may ultimately be subject to forfeiture in order to
satisfy the money judgment, the Court is mindful of
two guiding principles underlying section 853. First,
courts should liberally construe the provisions of the
statute in order to effectuate its remedial purposes.
§ 853(o). Second, courts may take any appropriate
actions which preserve the availability of defendants’
property for forfeiture. § 853(e)(1).
Applying those principles here, the Court concludes
that it is appropriate, necessary, and remedial to
continue the restraint of Defendant Dong’s remaining
substitute assets pending the resolution of ancillary
proceedings related to the GenPhar Property, entry of
a Final Order of Forfeiture related thereto, and, if
applicable, government disposition of the GenPhar
Property.16 Accordingly, the Court grants the government’s motion to hold the forfeiture of such other
16 For these reasons, the Court denies Dong’s “Motion for
Reconsider Order Granting Government’s Supplemental Motion
App.50a
assets in abeyance (ECF 656), and continues the
restraining orders currently in effect (ECF Nos. 255;
658; 681) until further order of this Court.17
E. Prohibited Acts or Omissions of the
Defendants Under Section 853(p)(1)
The Court finds that Defendants have engaged
in acts or omissions resulting in liens against the
GenPhar Property. These include taking out two mortgages on the GenPhar Property (the Rentec and
Mandra mortgages) totaling $4,897,917.90; failing to
file tax documents, resulting in the SCDOR levying
tax liens in the amount of $112,032.86; and, failing to
pay workers, resulting in mechanic’s liens totaling
$60,897,97. The Court concludes that Defendants’
actions in burdening the property with such liens and
debts constitute prohibited “acts or omissions” on
their part under section 853(p)(1), which have substantially diminished the value of the property under
section 853(p)(1)(D).
The Court finds that Defendants failed to take
reasonable steps to secure and maintain the property
as ordered by the original restraining order, resulting
in vandalism, theft, and deterioration. The Court further finds that these acts and omissions constitute
for Forfeiture,” (ECF No. 701), which seeks the release of those
currently restrained substitute assets.
17 The Court grants the Government’s motion to strike as
unnecessary the provision in the original restraining order (ECF
No. 255 at 15) regarding the appointment of a receiver for GenPhar.
(ECF No. 834.) As the Government notes, GenPhar is no longer
a going concern. Therefore, managing GenPhar is no longer
viable and the appointment of a receiver is not necessary. The
remainder of the restraining order (ECF No. 255) is still in effect.
App.51a
prohibited “acts or omissions” on defendants’ part under
section 853(p)(1), which have substantially diminished
the value of the property under section 853(p)(1)(D).
The Court finds that Defendants’ actions in
disbursing grant funds in the amount of $308,062 for
lobbying and other non-allowable expenses constituted
acts or omissions by defendants under Section 853(p)(1),
which have resulted in the transfer of directly forfeitable
proceeds to third parties under section 853(p)(1)(B).
The Court finds that Defendants commingled
grant funds and non-grant funds, which were then
transferred through multiple accounts, such that Government efforts to trace the grant funds into other
property (for the purpose of determining the existence
of other directly forfeitable property) would be timeconsuming, resource-intensive, prohibitively expensive,
and, in all likelihood, futile. The Court concludes that
Defendants’ commingling and transfers of funds in
this fashion constitute acts or omissions under section
853(p)(1). The Court further finds that, based upon
such acts or omissions, the Government cannot, upon
the exercise of due diligence, locate other directly forfeitable property of Defendants under section 853
(p)(1)(A); and that as a result of such acts or omissions,
the grant funds were commingled with other property
which could not be divided without difficulty under
853(p)(1)(E).
The Court finds that the inability of the government
to locate other directly forfeitable property of Defendants
was the result of one or more of the above-described
acts or omissions of Defendants. Therefore, the Court
concludes that the continued restraint of the substitute assets is warranted.
App.52a
F. The GenPhar Property
1. Proceeds:
Based upon the record in this case, the Court
finds that the GenPhar Property is titled in the name
of defendant GenPhar, Inc. The Court further finds
that the GenPhar Property constitutes proceeds of the
grant fraud underling the convictions in this case,
inasmuch as the defendants misdirected at least
$2,903,537.83 in grant funds into the construction of
the GenPhar building. As such, the GenPhar Property
constitutes or is derived from proceeds of violations of
the counts of conviction, all of which are either specified
unlawful activities, or conspiracy related thereto.
Accordingly, the GenPhar Property is forfeited pursuant to 18 U.S.C. § 981(a)(1)(C) (as incorporated into
criminal forfeiture by 28 U.S.C. § 2461(c)).
2. Substitute Asset:
In the alternative, the GenPhar Property is forfeited as a substitute asset under 21 U.S.C. § 853(p)(2),
based upon the above-described acts or omissions of
Defendants.
IV. Order
For the foregoing reasons, the Court GRANTS IN
PART the Government’s first POF motion, (ECF No.
593), insofar as it pertains to the imposition of a
forfeiture money judgment and the forfeiture of the
GenPhar Property. The Court further GRANTS IN
PART the second POF motion, (ECF No. 793), and
restrains the SunTrust Accounts to potentially be
forfeited as substitute assets at a later date. The Court
also GRANTS the Government’s amended motion to
App.53a
hold the forfeiture of substitute asset in abeyance,
(ECF No. 656), and GRANTS the Government’s motion
to strike a provision in the restraining order, ECF No.
255, (ECF No. 834). Finally, the Court DENIES Dong’s
motion to stay the forfeiture order pending appeal,
(ECF No. 811), and DENIES Dong’s “Motion for
Reconsider Order Granting Government’s Supplemental Motion for Forfeiture,” (ECF No. 701).
Accordingly, it is hereby ORDERED that the
below-described property, and all right, title, and
interest of the defendants, JIAN-YUN DONG, a/k/a
John Dong, GENPHAR, INC., and VAXIMA, INC., in
and to such property, is hereby forfeited to the United
States of America, for disposition in accordance with
law, subject to the rights of third parties in such property under 21 U.S.C. § 853(n):
A. Cash Proceeds / Money Judgment:
A sum of money equal to all proceeds the defendants, JIAN-YUN DONG, a/k/a John Dong, GENPHAR,
INC., and VAXIMA, INC., obtained directly or indirectly
as the result of the offenses charged in the Third
Superseding Indictment, or traceable to such property; that is, a minimum of $3,211,599.83 in United States
currency, for which the defendants are jointly and severally liable, along with interest thereon at the rate
provided for in 28 U.S.C. § 1961.
B. Real Property:
Pursuant to 18 U.S.C. 981(a)(1)(C) (as incorporated
by 28 U.S.C. 2461(c)), and/or 21 U.S.C. 853(p)(2), the
below-listed real property is forfeited, as is all right,
title and interest of the defendants, JIAN-YUN DONG,
a/k/a John Dong, GENPHAR, INC. and VAXIMA,
App.54a
INC., in and to such property. Such real property is
more fully described as follows:
S. Morgan Point Road
(also known as 1200 Innovation Way)
Mount Pleasant, South Carolina 29466
Sub-Division: Christ Church Parish
Government Asset Identification Number:
12-DEF-000001
All that certain piece, parcel or tract of land
with any and all improvements thereon,
situate, lying and being in Christ Church
Parish, Town of Mount Pleasant, Charleston
County, South Carolina and containing 2.595
Acres, and designated as Parcel B, and shown
on that certain Plat prepared by Atlantic
Coast Land Surveying entitled “Subdivision,
Recommendation and Property Line Adjustment Plat Showing A New 6.000 Acre ‘Parcel
A’ Prepared for University Medical Associates
of the Medical University of South Carolina
and Oakland Properties, LLC, Created from
a 0.128 Acre Parcel With TMS #600-00-00056, A 0.260 Acre Portion of a Parcel With
TMS#600-00-00-055, A 0.749 Acre Portion of
a Parcel with TMS #600-00 00-057 and A
4.863 Acre Portion of a Parcel with TMS #
600-00-00-047 and a New 2.595 Acre ‘Parcel
B’ Created From the Remaining Parcel With
TMS # 600-00-00-057 and A 0.804 Acre
Portion of a Parcel with TMS # 600-00-00047”, dated April 29, 2008, last revised June
17, 2008, and recorded in Plat Book L08 at
Page 0162 in the RMC Office for Charleston
County, South Carolina.
App.55a
BUTTING, BOUNDING, MEASURING AND
CONTAINING as by reference to said plat
will more fully appear.
Being the same property conveyed to the
Mortgagor herein by deed of Oakland Properties, LLC., dated March 28, 2007 and
recorded in Book S627, page 692 in the RMC
Office for Charleston County. TMS #600-0000-056
It is further ORDERED that forfeiture proceedings
against the below-described property are to be held in
abeyance until further order of this Court, and that
such property is restrained under the same terms and
conditions as the restraining orders previously issued
against such property until further order of this
Court:
C. Real Property:
1. 441 Lake Moultrie Drive
Bonneau, South Carolina 29431
Berkeley County, SC
Government Asset Identification Number:
12-DEF-000003
All that certain lot, piece or parcel of land,
known and designated as Lot 2, Section IV,
on a plat of Lake Moultrie Shores Subdivision, dated March 23, 1965, recorded in
Plat Book 0, at page 176, Clerk of Courts
Office for Berkeley County (a/k/a ROD Office
for Berkeley County; said lot having such
buttings and boundings, measurements and
dimensions as are shown on said plat;
App.56a
AND also the assumption of that lease from
South Carolina Public Service Authority, dated
April 20, 1979. Subject to those Restrictions
outlined in the Deed from Lake Moultrie
Shores, Inc. To Edwards A. Riley and
Katherine Riley recorded in Book A295, at
page 175,k and those Restrictive Covenants
recorded in Book C113, at Page 108; Book
C114, at Page 54; and Book C115, at Page
137.
Being same property conveyed to the Granters
herein by deed of Edwards A. Riley, Jr. dated
July 5, 3003 and recorded in Book 2819 Page
84 in the RMC Office for Berkeley County
Tax Map Number: 057-01-04-004
2. 71 Delahow Street
Daniel Island, South Carolina
Government Asset Identification Number:
15-DCI-000120
ALL that certain lot, piece, parcel of land and
all improvements thereon, located on Daniel
Island, situate, lying and being in the City of
Charleston, Berkeley County, SC and known
and Lot 29, Block C, Parcel B, as shown and
designated on a plat by Thomas & Hutton
Engineering Co., entitled “Final Subdivision
Plat of Parcel B, Block C, Lots 17-29, Block
D, Lot 5-8 & 27-31, Block E, Lots 4-6, Blocks
F-H & Block I, Lots 1-5, Daniel Island Park,
Owned by Daniel Island Associates, LLC” by
Thomas & Hutton Engineering Co., dated
April 25, 2000 and recorded in the ROD
Office for Berkeley County in Plat Cabinet O
at Page 284-A, said lots having such size,
App.57a
shape, dimensions, buttings and boundings
as will by reference to said plat more fully
appear.
Being the same property conveyed to Neal
P. Vhor and Caroline J. Vohr by deed of
Kenneth C. Marcoon dated September 11,
2007 and recorded in the ROD Office for
Berkeley County in Plat Cabinet 6856 at
Page 290 on September 14, 2007.
Being the same property conveyed to Centigene, LLC by deed of Neal P. Vhor and
Caroline J. Vohr dated June 13, 2014 and
recorded in the ROD Office for Berkeley
County in Plat Cabinet 1081 at Page 52 on
June 20, 2014
SUBJECT to any and all restrictions, covenants, conditions, easements, rights of way
and all other matters affecting subject
property of record in the Office of the RMC
for Berkeley County, South Carolina. TMS
Number: 271-15-02-014
D. Bank Accounts / Investment Accounts:
1. All funds contained in the following Oppenheimer Funds retirement accounts:
Account Number
Account Description
00847 8477189413
RPSS TR Simple IRA,
Registered to GenPhar, Inc.,
FBO Jian-Yun Dong
(Government Asset ID
No. 16-DCI-000010)
App.58a
00836 8360552915
RPSS TR IRS, FBO JianYun Dong
(Government Asset ID
No. 16-DCI-000011)
00836 8360432201
RPSS TR Simple IRA,
Registered to GenPhar, Inc.,
FBO Jian-Yun Dong
(Government Asset ID
No. 16-DCI-000012)
RPSS TR Simple IRA,
Registered to GenPhar, Inc.,
FBO Jian-Yun Dong
(Government Asset ID
No. 16-DCI-000013)
00701 7016065196
00591 5910221221
RPSS TR Simple IRA,
Registered to GenPhar, Inc.,
FBO Jian-Yun Dong
(Government Asset ID
No. 16-DCI-000014)
00252 2521445444
RPSS TR IRA, FBO
Jian-Yun Dong
(Government Asset ID
No. 16-DCI-000015)
00226 2261697003
RPSS TR Simple IRA,
Registered to GenPhar, Inc.,
FBO Jian-Yun Dong
(Government Asset ID
No. 16-DCI-000016)
2. All funds contained in South Carolina Deferred
Compensation Program 401(k) Account No. xxx-xx0403, registered to Jiayun Dong (Government Asset
ID No. 12-DEF-00006).
App.59a
3. All funds contained in three TIAA CREF MUSC
retirement accounts registered to Jiayun Dong (Government Asset ID No. 12-DEF-00007), further described
as follows:
a.
TIAA RC Traditional Account No. F001525-2;
b.
CREF RC Account No. H001525-8; and,
c.
TIAA GRA Traditional Account No. 3506411-2.
4. All funds contained in SunTrust Bank Account
Number 1000193937819. In the names of Jian-Yun
Dong and Ping Zhao (Government Asset Identification
Number: 17-DCI-000019).
5. All funds contained in SunTrust Bank Account
Number 1000193937827. In the names of Jian-Yun
Dong and Ping Zhao (Government Asset Identification
Number: 17-DCI-000020).
It is further ORDERED:
1. That upon entry of the criminal judgment, the
POF becomes final as to Defendant, and shall be made
a part of the sentence and included in the criminal
judgment, pursuant to Rule 32.2(b)(4)(A.
2. That pursuant to Rule 32.2(e), the United
States may at any time move to amend the POF to
forfeit property in which defendants have an interest,
whether directly forfeitable or substitute assets, and
whether identified at this time or in the future, to
satisfy the money judgment of $3,211,599.83.
3. That the United States may sell or otherwise
dispose of any forfeited property, including substitute
assets, in accordance with law as required to satisfy
the money judgment.
App.60a
4. That pursuant to 21 U.S.C. § 881(e)(2)(A), the
proceeds from any sale of forfeited property in this
case shall be used to pay all property expenses of the
proceedings for forfeiture and sale, including expenses
of seizure, maintenance of custody, advertising, and
court costs.
5. That upon the entry of the POF, the United
States Attorney is authorized to conduct proper discovery in identifying, locating, or disposing of the described property, or other substitute assets, pursuant to
Rule 32.2(b)(3); and to commence proceedings that
comply with statutes governing third party rights, if
applicable, pursuant to 21 U.S.C. § 853(n)(6).
6. That the POF shall serve as a Writ of Entry
and Inspection, authorizing the United States Marshals
Service (“USMS”), and any other Government or nonGovernment personnel assisting the USMS, to enter
onto and into the premises of the above-described real
property as necessary for purposes of conducting
inspections, appraisals, and video recording the property, to record and document the condition, value, and
maintenance of the property until the forfeiture proceedings are concluded.
7. That occupants of the real property forfeited
herein shall be served with a copy of the POF and provided with notice of the forfeiture of the property.
8. That the Government is not required to publish
notice regarding the forfeiture money judgment against
the Defendants; however, the POF shall be recorded
in the records of the County Clerk’s Office in the
County of the debtor’s residence, place of business,
and any and all other counties in which the debtor has
either real or personal property, as a lien thereon.
App.61a
9. That the United States shall publish notice of
the POF and its intent to dispose of the personal property in such manner as the Attorney General may
direct, pursuant to 21 U.S.C. § 853(n)(1); and that the
United States shall send notice of the POF to any
person, other than the Defendants, who reasonably
appears to be a potential claimant with standing to
contest the forfeiture, pursuant to Rule 32.2(b)(6).
10. That upon entry of the POF, the USMS or its
designee is authorized to seize the above-described
forfeited property as directed by the United States
Attorney’s Office, and to commence proceedings that
comply with legal provisions governing third-party
rights under 21 U.S.C. § 853(n) and Rule 32.2(c).
11. That any person, other than the Defendants,
asserting a legal interest in the forfeited property may,
within thirty days of the final publication of notice or
receipt of notice, whichever is earlier, petition the Court
for a hearing without a jury to adjudicate the validity
of their alleged interest in the property, and for an
amendment of the POF, pursuant to 21 U.S.C.
§ 853(n)(6) and Rule 32.2(c).
12. That pursuant to the requirements for ancillary petitions under 21 U.S.C. § 853(n)(3), any petition
filed by a third party asserting an interest in the
above-described forfeited property shall be signed by
the petitioner under penalty of perjury, and shall set
forth (1) the nature and extent of the petitioner’s
right, title, or interest in the particular property; (2)
the time and circumstances of the petitioner’s acquisition of the right, title, or interest in such property;
(3) any additional facts supporting the petitioner’s
claim to an interest in such property; and (4) the relief
sought.
App.62a
13. That after the disposition of any motion filed
under Rule 32.2(c)(1)(A) (providing for dismissal of
ancillary petitions for lawful reasons), and before any
ancillary hearing on the petition, discovery may be
conducted in accordance with the Federal Rules of
Civil Procedure, pursuant to Rule 32.2(c)(1)(B), upon
a showing that such discovery is necessary or desirable
to resolve factual issues.
14. That the United States shall have clear title
to the property following the court’s determination of
all third-party interests, or, if no petitions are filed,
following the expiration of the period provided in 21
U.S.C. § 853(n)(2) for the filing of third-party petitions.
15. That the Court shall retain jurisdiction to
resolve disputes which may arise, and to enforce and
amend the POF as necessary, pursuant to Rule 32.2(e).
16. That the Clerk of the United States District
Court shall provide one (1) certified copy of this Order
to the United States Attorney’s Office.
IT IS SO ORDERED.
/s/ Bruce Howe Hendricks
United States District Judge
Greenville, South Carolina
April 25, 2017
App.63a
ORDER ON POST-TRIAL RULE 29 MOTION OF
THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF SOUTH CAROLINA
(DECEMBER 8, 2015)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
________________________
UNITED STATES OF AMERICA,
v.
JIAN-YUN DONG, a/k/a JOHN DONG,
GENPHAR, INC., VAXIMA INC.,
Defendants.
________________________
No. 2:11-cr-00511-DCN
Before: David C. NORTON,
United States District Judge.
This matter comes before the court on various
post-trial motions filed by defendants Jian-Yun Dog,
a/k/a John Dong (“Dong”), GenPhar, Inc. (“GenPhar”),
and Vaxima, Inc. (“Vaxima”) (collectively “defendants”).
I.
Background
On April 16, 2013, a federal grand jury returned
a thirty-four count Third Superseding Indictment
(“Indictment”) charging Dong, GenPhar, and Vaxima
with conspiracy to defraud the United States in violation of 18 U.S.C. § 371 by (1) presenting false,
App.64a
fictitious, or fraudulent claims to an agency of the
United States in violation of 18 U.S.C. § 287; (2)
stealing or improperly converting government funds
to their own use in violation of 18 U.S.C. §§ 641 & 2;
(3) stealing or improperly converting money from
programs receiving federal funds in violation of 18
U.S.C. § 666(a)(1)(A); (4) using interstate wire communications in furtherance of the scheme in violation of
18 U.S.C. § 1343; and (5) making material false statements to federal agencies in violation of 18 U.S.C.
§ 1001. Counts Two through Nine charged the defendants with eight counts of theft of government property
in violation of 18 U.S.C. §§ 641 & 2, Counts Ten
through Twelve charged three counts of theft from an
organization receiving federal funds in violation of 18
U.S.C. §§ 666(a)(1)(A) & 2, and Counts Thirteen
through Thirty-four charged twenty-two counts of wire
fraud in violation of 18 U.S.C. §§ 1343 & 2.
Defendants entered a plea of not guilty on October 30, 2012. Counts Two through Six and Eight
through Twelve were dismissed by government motion
on November 4, 2014. ECF No. 471. The first jury trial
began on November 5, 2014 before United States
District Judge C. Weston Houck. The jury failed to
render a verdict on all counts against Dong. On
November 14, 2014, the jury returned a verdict of guilty
on most counts against GenPhar and Vaxima; however, the jury was unable to render a verdict on Count
One against GenPhar and Vaxima and Count Sixteen
against Vaxima.
On June 9, 2015, defendants filed a joint motion
for a bench trial with waiver of right to a jury trial. On
June 17, 2015, the court conducted a hearing on
defendants’ motions during which the court instructed
App.65a
defendants regarding their rights to a jury trial and
their desire to waive that right. This court conducted
a bench trial on June 22, 23, 24, and 25, 2015. On
August 4, 2015, this court issued a verdict, finding
Dong guilty of all counts, GenPhar guilty as to Count
One, and Vaxima guilty as to Count One and Count
Sixteen.1
On August 18, 2015, Dong filed a pro se motion
for a new trial. That same day, Dong, Vaxima, and
GenPhar filed a motion for a judgment of acquittal
pursuant to Federal Rule of Criminal Procedure 29(c),
or alternatively, for a new trial pursuant to Rule 33.2
On August 19, 2015, Dong filed a second pro se motion
for a new trial. Dong filed a second pro se motion for a
judgment of acquittal or motion for a new trial on
August 31, 2015, and an amended motion for a judgment of acquittal or motion for a new trial on September 2, 2015. The government responded to defendants’
1 The parties did not request findings of fact and conclusions of
law but rather requested that the court issue its verdict solely by
way of a verdict form, as would a jury. See Fed. R. Crim. P. 23(c)
(“In a case tried without a jury, the court must find the defendant
guilty or not guilty. If a party requests before the finding of guilty or
not guilty, the court must state its specific findings of fact in open
court or in a written decision or opinion.”) (emphasis added). The
court did, however, issue an order intended solely to provide
informal insight into the court’s thought process. The evidence
cited within the order was not the sole evidence on which the
court relied in issuing its verdict. Rather, the court engaged in
an extensive analysis of the entirety of the evidence presented in
reaching its decision but chose to note only a portion of the evidence in support of each count against the defendants. ECF Nos.
556, 557, & 558, Ex. 1.
2 Dong’s attorney also filed a motion to be relieved as counsel.
ECF No. 563.
App.66a
motions on September 3, 2015. On September 30,
2015, Dong filed a pro se motion for new trial based on
newly discovered evidence and a reply to his prior
motions. On September 30, 2015, October 18, 2015,
and November 15, 2015, GenPhar and Vaxima filed
motions to join in Dong’s various pro se motions “in so
far as they do not conflict with the interests of these
two defendants.”3
II. Standard
A. Rule 29(c)
Rule 29(c) provides that a court, on the motion of
a defendant after a verdict of guilty, may “set aside
the verdict and enter judgment of acquittal.” Fed. R.
Crim. P. 29(c). In considering a motion for judgment
of acquittal, the court must decide “whether the evidence, viewed in the light most favorable to the prosecution, is such that the finder of fact might find the
defendant guilty beyond a reasonable doubt.” United
States v. Wooten, 503 F.2d 65, 66 (4th Cir. 1974). In
short, in a challenge to the sufficiency of the evidence,
“[t]he verdict of a jury must be sustained if there is substantial evidence, taking the view most favorable to
the Government, to support it.” Glasser v. United
States, 315 U.S. 60, 80 (1942). In determining the issue
of substantial evidence, the court neither weighs the
evidence nor considers the credibility of witnesses.
3 Because defendants GenPhar and Vaxima joined in Dong’s pro
se motions to the extent that the arguments within do not conflict
with their interests, the court will address Dong’s arguments as
they apply to all defendants generally. The court will refer to
such arguments as “defendants’” arguments, even when made
solely by Dong in his pro se motions.
App.67a
United States v. Arrington, 719 F.2d 701 (4th Cir.
1983).
B. Rule 33
Federal Rule of Criminal Procedure 33(a) permits
a court, upon motion by a defendant, to “vacate any
judgment and grant a new trial if the interest of
justice so requires.” Fed. R. Crim. P. 33. The Fourth
Circuit has recognized that “[a] new trial is a drastic
remedy intended for the rare case. United States v.
Chin, 1999 WL 333137, at *1 (4th Cir. May 26, 1999).
Indeed, the Fourth Circuit has “held that a district
court should exercise its discretion to grant a new trial
‘sparingly’ and that the district court should grant a
new trial based on the weight of the evidence ‘only
when the evidence weighs heavily against the
verdict.’” United States v. Wilson, 118 F.3d 228, 237
(4th Cir. 1997) (quoting United States v. Arrington,
757 F.2d 1484, 1486 (4th Cir. 1985)). In ruling on a
motion for a new trial, “[t]he district court should
examine all the evidence introduced at trial and—
unlike when ruling on a motion for acquittal—the court
may evaluate for itself the credibility of witnesses.”
Chin, 1999 WL 333137, at *1 (citing Arrington, 757
F.2d at 1485). The court may draw inferences
unfavorable to the government from the evidence.
United States v. Campbell, 977 F.2d 854, 860 (4th Cir.
1992).
When considering a Rule 33 motion, a district
court is owed “great deference” because it effectively
sits as a “thirteenth juror.” United States v. Wolff,
1989 WL 152513, at *8 (4th Cir. Dec.12, 1989). “A trial
judge’s superior vantage point is nowhere more
certain than in assessing the overall dynamics of a
App.68a
trial, including . . . the overall ‘weight’ of the evidence.”
Id. at *9. However, the court should not carelessly
substitute its judgment for that of the jury. “A district
court ‘judge is not a thirteenth juror who may set aside
a verdict merely because he would have reached a
different result.’” United States v. Rivera Rangel, 396
F.3d 476, 486 (1st Cir. 2005) (quoting United States v.
Rothrock, 806 F.2d 318, 322 (1st Cir. 1986)). Only
“[w]hen the evidence weighs so heavily against the
verdict that it would be unjust to enter judgment”
should the court grant a motion for a new trial.
Arrington, 757 F.2d at 1485.
III. Discussion
In the numerous post-trial motions, defendants
make various arguments, many of which simply
request that the court re-weigh the evidence against
them. To the extent that defendants argue that there
is insufficient evidence to support the verdicts, the
court directs defendants to its August 4, 2015 order in
which the court extensively outlined the applicable law
and overwhelming corresponding evidence as it
relates to each count in the Indictment. Clearly, as the
court found in issuing the verdicts, there is substantial evidence to establish defendants’ guilt on all
charges before the court. However, beyond defendants’ arguments pertaining to the sufficiency of the
evidence, the court will specifically address defendants’
arguments below.
A. Newly Discovered Evidence
Defendants argue that they are entitled to an
acquittal and/or a new trial based on newly discovered
evidence. A defendant must demonstrate the following
App.69a
to receive a new trial based on newly discovered evidence: (1) the evidence is, in fact, newly discovered; (2)
the defendant used due diligence to uncover the evidence; (3) the evidence is not merely cumulative or
impeaching; (4) the evidence is material; and (5) the
evidence would probably result in an acquittal at a
new trial. United States v. Lofton, 233 F.3d 313, 318
(4th Cir. 2000). The defendant must meet all five
factors in order to receive a new trial. United States v.
Chavis, 880 F.2d 788, 793 (4th Cir. 1989).
Defendants cannot satisfy the aforementioned
factors because the evidence is not newly discovered.
In support of the motion for a new trial based on newly
discovered evidence, Dong states the following: “New
evidence arise [sic] during the trial but not followed
up by the defense attorney that include the GMP
facility is described in the proposal as testified by the
Dr. Repik the Program Officer of NIH [sic], and
Emails from Dr. Pratt confirmed that the Army
requested the fund for experimental monkeys remained
to be at GenPhar [sic] for additional work.” ECF No.
572 at 1 (emphasis added). Dong further contends that
“[n]ew evidence and testimony showed that Deputy
Director for Grant Management, Dr. Norwood had
been interviewed repeatedly and the last contact was
right before trial.” Id. at 2 (emphasis added). Copious
grant documents and emails were produced prior to
trial, and there is no evidence that any pertinent
documents were withheld. Further, Dr. Repik and Dr.
Pratt testified during the trial regarding the emails and
grant documents.
It is clear that the “new evidence” cited in support
of defendants’ post-trial motions was revealed during
the trial, evidenced by Dong’s own statements. See
App.70a
ECF no. 572 at 1–2. Therefore, defendants are not
entitled to a new trial based on newly discovered evidence. To the extent that defendants argue that their
attorneys failed to sufficiently address the newly discovered evidence during trial or subpoena Dr.
Norwood to testify in light of recent communications,
these arguments will be analyzed within the ineffective assistance of counsel claim below.
B. Ineffective Assistance of Counsel
Defendants also contend that they are entitled to
an acquittal and/or new trial based on ineffective
assistance of counsel. A defendant may request a new
trial pursuant to Rule 33(b)(2) based on ineffective
assistance of counsel. See United States v. Russell, 221
F.3d 615, 619 (4th Cir. 2000); see also United States
v. Smith, 62 F.3d 641, 648 (4th Cir. 1995). When
reviewing a motion for a new trial based on ineffective
assistance of counsel, courts apply the familiar standard outlined in Strickland. See Russell, 221 F.3d at
620 (citing Strickland v. Washington, 466 U.S. 668,
687 (1984)). To that end, a defendant must satisfy the
two-prong test outlined in Strickland: a defendant
must first show that that his counsel’s performance
“fell below an objective standard of reasonableness,”
and second, a defendant must also show that he was
“prejudiced” by his counsel’s errors; that is, the defendant must show there is “a reasonable probability that,
but for counsel’s unprofessional errors, the result of the
proceeding would have been different.” Strickland, 466
U.S. at 694.
To satisfy the deficient performance prong of
Strickland, the convicted defendant must overcome
the “‘strong presumption’ that counsel’s strategy and
App.71a
tactics fall ‘within the wide range of reasonable professional assistance.’” Burch v. Corcoran, 273 F.3d 577,
588 (4th Cir. 2001) (quoting Strickland, 466 U.S. at
689). The prejudice component requires a convicted
defendant to “show that there is a reasonable probability
that, but for counsel’s unprofessional errors, the result of
the proceeding would have been different. A reasonable
probability is a probability sufficient to undermine
confidence in the outcome.” Strickland, 466 U.S. at
694. In analyzing ineffective assistance of counsel
claims, it is not necessary to determine whether
counsel performed deficiently if the claim is readily
dismissed for lack of prejudice. Id. at 697. “A reasonable probability is a probability sufficient to
undermine confidence in the outcome.’ It is not
enough ‘to show that the errors had some conceivable
effect on the outcome of the proceeding.’ Counsel’s
errors must be ‘so serious as to deprive the defendant
of a fair trial, a trial whose result is reliable.’”
Harrington v. Richter, 131 S. Ct. 770, 787-88 (2011)
(quoting Strickland, 466 U.S. at 687, 693-94).
i. Conflict of Interest
Dong’s ineffective assistance of counsel arguments
are principally based on his claim that trial counsel
was acting under an actual conflict of interest.4 “For a
claim concerning a conflict of interest, ‘a defendant
who raised no objection at trial must demonstrate that
an actual conflict of interest adversely affected his
4 During the trial, Rose Mary Parham represented Dong, but did
not represent GenPhar or Vaxima. G. Wells Dickson, Jr. represented GenPhar and Vaxima, and there are no allegations of
ineffective assistance of counsel or conflict of interest pertaining
to his representation within the various post-trial motions.
App.72a
lawyer’s performance.’” United States v. Okun, 2015
WL 6471172, at *8 (E.D. Va. Oct. 26, 2015) (quoting
Cuyler v. Sullivan, 446 U.S. 335, 348 (1980)). “When a
petitioner premises his ineffective assistance claim on
the existence of a conflict of interest, the claim is subjected to the specific standard spelled out in” Sullivan
instead of that articulated in Strickland. United
States v. Nicholson, 475 F.3d 241, 249 (4th Cir. 2007).
The petitioner must demonstrate “(1) that his lawyer
was under ‘an actual conflict of interest’ and (2) that
this conflict ‘adversely affected his lawyer’s performance.’” Id. (quoting Sullivan, 446 U.S. at 348). “If
the petitioner can show an actual conflict, and that it
adversely affected his lawyer’s performance, prejudice is
presumed and there is no need to demonstrate a reasonable probability that, but for the lawyer’s conflict
of interest, the trial or sentencing outcome would have
been different.” Id. “[A]n adverse effect is not presumed
from the existence of an actual conflict of interest.” Id.
“That said, [courts] assess each of the two prongs of
the Sullivan test in turn, that is, (1) whether Dong’s
attorney had an actual conflict of interest, and (2)
whether that conflict adversely affected her performance during the trial.” Id.
To establish an actual conflict of interest, Dong
“must show that [his] interests diverged with respect
to a material factual or legal issue or to a course of
action.” Id. (quoting Gilbert v. Moore, 134 F.3d 642,
652 (4th Cir. 1998) (en banc)). Dong contends that
trial counsel acted under an actual conflict of interest
and collaborated with the government because she is
married to a member of the United States Attorney’s
Office. However, the fact that defense counsel’s husband
works for the United States Attorney’s Office is not an
App.73a
actual conflict of interest. Under American Bar
Association (“ABA”) Model Rule of Professional Conduct
1.7, “[a] concurrent conflict of interest exists if . . . there
is a significant risk that the representation of one or
more clients will be materially limited by the lawyer’s
responsibilities to another client, a former client or a
third person or by a personal interest of the lawyer.”
Comment 11 to Rule 1.7 states:
When lawyers representing different clients
in the same matter or in substantially
related matters are closely related by blood
or marriage, there may be a significant risk
that client confidences will be revealed and
that the lawyer’s family relationship will
interfere with both loyalty and independent
professional judgment. As a result, each client
is entitled to know of the existence and
implications of the relationship between the
lawyers before the lawyer agrees to undertake
the representation. Thus, a lawyer related to
another lawyer, e.g., as parent, child, sibling
or spouse, ordinarily may not represent a
client in a matter where that lawyer is representing another party, unless each client
gives informed consent. The disqualification
arising from a close family relationship is
personal and ordinarily is not imputed to
members of firms with whom the lawyers are
associated.
Model Rules of Prof’l Conduct r. 1.7 cmt 11 (emphasis
added). Although Dong’s attorney would have an
actual conflict if her husband were opposing counsel,
that conflict is not imputed to other lawyers with
whom her husband is associated. Further, beyond
App.74a
empty allegations that trial counsel colluded with the
prosecution in an effort to better her husband’s career,
there is absolutely no evidence or indication to the
court of a significant risk that Ms. Parham’s representation of Dong was materially limited by her
alleged personal interest. Thus, defendants cannot
establish that defense counsel had an actual conflict
of interest as required under the Sullivan factors.
ii. Other Allegations of Ineffective Assistance
It appears that Dong also argues that trial
counsel’s performance was deficient in numerous
ways, including that: (1) defense counsel refused to
file a motion to review certain documents before trial;
(2) defense counsel failed to call defense witnesses or
sufficiently examine the witnesses; (3) defense counsel
refused to meaningfully cross examine witnesses to
disclose alleged perjuries; (4) defense counsel failed to
object to admission of certain evidence; and (5)
defense counsel refused to subpoena Dr. Norwood to
testify. The court finds that Dong’s counsel’s performance did not fall below an objective standard of
reasonableness, especially in light of the “strong presumption that counsel’s conduct falls within the wide
range of reasonable professional assistance.” Strickland,
466 U.S. at 689. Rather, Dong’s attorney vigorously
represented him during the trial notwithstanding his
continued insistence on directing the entirety of his
defense.
Even assuming that trial counsel’s alleged “failures” amount to deficient performance under the first
prong of the Strickland test, Dong does not attempt to
demonstrate that defendants were prejudiced by the
alleged errors, i.e., that but for the alleged errors, the
App.75a
court would not have found defendants guilty. In light
of the overwhelming evidence presented by the government, there is no indication that the court would have
acquitted defendants had Dong’s attorney objected to
certain evidence, more adequately cross examined
witnesses, subpoenaed Dr. Norwood to testify, etc.
Further, the court allowed Dong—after counsel’s
cross-examination of the witnesses—to write down
questions he desired counsel to ask the witnesses and
patiently continued to allow Dong to ask questions via
his attorney until he was satisfied.
Because defendants have failed to establish that
trial counsel’s performance fell below an objective
standard of reasonableness, prejudice, or an actual
conflict of interest, the court holds that they are not
entitled to a new trial based on ineffective assistance
of counsel.
IV. Conclusion
For the reasons set forth above, defendants’
motion for a new trial pursuant to Federal Rule of
Criminal Procedure 33 and motion for judgment of
acquittal pursuant to Federal Rule of Criminal Procedure 29(c) are DENIED.
AND IT IS SO ORDERED.
/s/ David C. Norton
United States District Judge
December 8, 2015
Charleston, South Carolina
App.76a
VERDICT FORM FOR VAXIMA, INC.
(AUGUST 4, 2015)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
________________________
UNITED STATES OF AMERICA,
v.
JIAN-YUN DONG, a/k/a JOHN DONG,
GENPHAR, INC., VAXIMA INC.,
Defendants.
________________________
No. 2:11-cr-00511-DCN
Before: David C. Norton, United States District Judge.
1. Vaxima, Inc. is Guilty beyond a reasonable doubt
as to Count 1 of the Third Superseding Indictment.
2. Vaxima, Inc. is Guilty beyond a reasonable doubt
as to Count 16 of the Third Superseding Indictment.
AND IT IS SO ORDERED.
/s/ David C. Norton
United States District Judge
August 4, 2015
Charleston, South Carolina
App.77a
VERDICT FORM FOR GENPHAR, INC.
(AUGUST 4, 2015)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
________________________
UNITED STATES OF AMERICA,
v.
JIAN-YUN DONG, a/k/a JOHN DONG,
GENPHAR, INC., VAXIMA INC.,
________________________
No. 2:11-cr-00511-DCN
Before: David C. NORTON,
United States District Judge
1. Genphar, Inc. is Guilty beyond a reasonable doubt
as to Count 1 of the Third Superseding Indictment.
AND IT IS SO ORDERED.
/s/ David C. Norton
United States District Judge
August 4, 2015
Charleston, South Carolina
App.78a
ORDER ACCOMPANYING THE VERDICT OF
THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF SOUTH CAROLINA
(AUGUST 4, 2015)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
________________________
UNITED STATES OF AMERICA,
v.
JIAN-YUN DONG, a/k/a JOHN DONG,
GENPHAR, INC., VAXIMA INC.,
Defendants.
________________________
No. 2:11-cr-00511-DCN
This matter comes before the court following a
bench trial held on June 22, 23, 24, and 25, 2015. The
parties did not request findings of facts and conclusions
of law but instead requested that the court issue its
verdict solely by way of a verdict form, as would a jury.
Nevertheless, during the course of its deliberation, the
court found it helpful to outline the law and evidence
as it pertains to the counts charged in the indictment.
The court believes that this information may similarly
be beneficial to the parties. However, the following
statements are not intended to be nor should they be
construed as findings of facts and conclusions of law.
To the contrary, the following statements are intended
App.79a
solely to provide informal insight into the court’s thought
process. The evidence cited is not the sole evidence on
which the court relied in issuing its verdict. Rather,
the court engaged in an extensive analysis of the
entirety of the evidence presented in reaching its decision but chose to note only a portion of the evidence in
support of each count against the defendants.
THIRD SUPERSEDING INDICTMENT1
COUNT ONE: Conspiracy
Count One charges that John Dong, Vaxima, and
GenPhar conspired to defraud the federal government
and conspired to commit a variety of offenses in violation of 18 U.S.C. § 371.
Objects of the Conspiracy
(1) To defraud the United States and its agencies
by obtaining monies and property through false and
fraudulent statements, representations, and promises
(2) To commit the following offenses: (1) to make
claims to the United States for payment in the form of
requests for federal grant funds, then knowing each
claim to be false, fictitious, and fraudulent in violation
of 18 U.S.C. § 287; (2) to knowingly and willfully
embezzle, steal, purloin, and convert to their own use
funds belonging to USAMRAA, NIH, NMRC, in violation of 18 U.S.C. § 641; (3) to use and cause the use of
1 The legal statements outlining the elements of each count below
were taken from Pattern Jury Instructions for Federal Criminal
Cases, United States District Court, District of South Carolina
(2014), as well as from the court’s own research of Fourth Circuit
case law. As stated above, these legal statements are not to be
construed as conclusions of law.
App.80a
interstate wire communications in furtherance of a
scheme to defraud the U.S. and to obtain money and
property by means of false and fraudulent pretenses
in violation of 18 U.S.C. § 1343; (4) to make material
false statements to federal agencies in violation of 18
U.S.C. § 1001
(3) To obtain federal grant monies by means of
materially false and fraudulent pretenses, representations, promises, and material omissions.
APPLICABLE LAW
Title 18, United States Code, Section 371 makes
it a crime to conspire with someone else to commit an
offense made illegal by federal law or to defraud the
United States. United States v. Ellis, 121 F.3d 908,
913 (4th Cir. 1997).
To establish a conspiracy under § 371, the
Government must prove “(1) an agreement
between two or more people to commit a
crime, and (2) an overt act in furtherance of
the conspiracy.” Ellis, 121 F.3d at 922. “The
existence of a tacit or mutual understanding
between conspirators is sufficient evidence of
a conspiratorial agreement.” Id. (internal quotation marks omitted). Proof of the agreement may be established by circumstantial
evidence. United States v. Burgos, 94 F.3d
849, 857 (4th Cir. 1996). It is no defense to a
conspiracy charge that one’s role in the conspiracy is minor. See United States v. Laughman,
618 F.2d 1067, 1076 (4th Cir. 1980) (“Once
the existence of a conspiracy is established,
evidence establishing beyond a reasonable
doubt a connection of a defendant with the
App.81a
conspiracy, even though the connection is
slight, is sufficient to convict him with knowing
participation in the conspiracy.” (internal
quotation marks omitted)).
United States v. Cone, 714 F.3d 197, 213 (4th Cir. 2013).
To prove conspiracy to commit an offense against
the United States, the government must prove: (1)
that two or more persons agreed to do something
which federal law prohibits, i.e., to violate 18 U.S.C.
§ 287; 18 U.S.C. § 641; 18 U.S.C. § 1343; or 18 U.S.C.
§ 1001; (2) that the defendants knew of the conspiracy
and willfully joined the conspiracy; and (3) that at
some time during the existence of the conspiracy or
agreement and within the limitations period, one of
the members of the conspiracy knowingly performed
one of the overt acts charged in the indictment in
order to accomplish the object or purpose of the agreement. See United States v. Singh, 518 F.3d 236, 252
(4th Cir. 2008).
To prove a conspiracy to defraud the United
States, the government must prove (1) that two or
more persons agreed to defraud the United States; (2)
that at some time during the existence of the conspiracy or agreement and within the limitations period,
one of the members of the conspiracy knowingly performed one of the overt acts charged in the indictment
in order to accomplish the object or purpose of the
agreement; and (3) that the defendants had the intent
to agree to defraud the United States. United States
v. Winfield, 997 F.2d 1076, 1082 (4th Cir. 1993) (citing
United States v. Tedder, 801 F.2d 1437, 1446 (4th Cir.
1986)).
App.82a
Under § 371, a conspiracy to defraud includes “any
conspiracy for the purpose of impairing, obstructing,
or defeating the lawful function of any department of
government.” United States v. Berger, 22 F. Supp. 2d
145, 150 (S.D.N.Y. 1998) (citing Dennis v. United States,
384 U.S. 855, 861 (1966)). “Such a conspiracy ‘need not
involve the violation of a separate statute,’ so long as
the government proves that ‘deceitful or dishonest
means [were] employed to obstruct governmental
functions.’” Id. (quoting United States v. Rosengarten,
857 F.2d 76, 78 (2d Cir. 1988); United States v.
Ballistrea, 101 F.3d 827, 832 (2d Cir. 1996)).
“In a conspiracy, two different types of intent are
generally required—the basic intent to agree, which is
necessary to establish the existence of the conspiracy,
and the more traditional intent to effectuate the object
of the conspiracy.” United States v. U.S. Gypsum Co.,
438 U.S. 422, 444 n.20 (1978); see also Kingrea, 573
F.3d at 191 (4th Cir. 2009) (recognizing that conspiracy indictments must allege all elements of the offense
that defendant is accused of conspiring to commit)
(internal citations omitted); United States v. Atkinson,
966 F.2d 1270, 1275 (9th Cir. 1992) (outlining the
elements of a conspiracy, including “the requisite
intent to commit the underlying substantive offense”).
“[I]t is undoubtedly true that a corporation is liable
for the criminal acts of its employees and agents done
within the scope of their employment with the intent
to benefit the corporation.” Mylan Labs., Inc. v. Akzo,
N.V., 2 F.3d 56, 63 (4th Cir. 1993). “The intracorporate
conspiracy doctrine recognizes that a corporation
cannot conspire with its agents because the agents’
acts are the corporation’s own.” Painter’s Mill Grille,
App.83a
LLC v. Brown, 716 F.3d 342, 352 (4th Cir. 2013). However, “in the criminal context[,] a corporation may be
convicted of conspiring with its officers.” United States
v. S & Vee Cartage Co., 704 F.2d 914, 920 (6th Cir. 1983).
The difficulty in accepting the theory of
intracorporate conspiracy is conceptual. Under
elementary agency principles, a corporation
is personified through the acts of its agents.
Thus, the acts of its agents become the acts
of the corporation as a single entity. The
conceptual difficulty is easily overcome,
however, by acknowledging the underlying
purpose for the creation of this fiction—to
expand corporate responsibility. By personifying a corporation, the entity was forced to
answer for its negligent acts and to shoulder
financial responsibility for them. The fiction
was never intended to prohibit the imposition
of criminal liability by allowing a corporation
or its agents to hide behind the identify [sic]
of the other. We decline to expand the fiction
only to limit corporate responsibility in the
context of the criminal conspiracy now before
us.
Id. (quoting United States v. Hartley, 678 F.2d 961,
970-73 (11th Cir. 1982)).2
2 The Fourth Circuit has not explicitly addressed whether the
intracorporate conspiracy doctrine should apply in the criminal
context when there is more than one human actor. However,
every circuit to address the issue has expressly rejected the application of the intracorporate conspiracy doctrine under these circumstances. See, e.g., United States v. Hughes Aircraft Co., Inc., 20
F.3d 974, 978-79 (9th Cir. 1994) (declining “to extend the intracorporate conspiracy doctrine to criminal activity”); United
App.84a
Section 371 does not require a greater mens rea
than does the substantive offense that is the object of
the conspiracy. “[W]here a substantive offense embodies
only a requirement of mens rea as to each of its elements,
[§ 371] requires no more.” United States v. Feola, 420
U.S. 671, 692 (1975). The two prongs of § 371—to
commit an offense and to defraud—“are not mutually
exclusive.” United States v. Arch Trading Co., 987
F.2d 1087, 1091 (4th Cir. 1993).
Criminal Corporate Responsibility
A corporation may be held criminally responsible
for criminal conduct committed by its employee or
agent if the employee or agent was acting within the
scope of his authority, or apparent authority, and for
States v. Ames Sintering Co., 927 F.2d 232, 236 (6th Cir. 1990)
(noting that the court has held a number of times that a corporation may be convicted for conspiring with its officers and employees); United States v. Hugh Chalmers Chevrolet-Toyota, Inc., 800
F.2d 737, 738 (8th Cir. 1986); United States v. Peters, 732 F.2d
1004, 1007-08 (1st Cir. 1984); United States v. Hartley, 678 F.2d
961, 970-72 (11th Cir. 1982), abrogated on other grounds by
United States v. Goldin Indus., Inc., 219 F.3d 1268, 1270-71 (11th
Cir. 2000); United States v. Pryba, 674 F. Supp. 1504, 1511 (E.D. Va.
1987). In the Third Superseding Indictment, the government
alleges that Dong conspired with “Person A,” Dr. Wang, also an
officer of the corporation. ECF No. 281, at 5-23. The government
contends that the Third Superseding Indictment “clearly and sufficiently alleges that GenPhar entered into an agreement with,
at the very least, Dong, Wang, and Vaxima, to engage in a scheme
to fraudulently procure the award of grant funds as well as
misuse those funds once awarded.” ECF No. 312. Notably, Judge
Houck refused to dismiss the indictment, holding that this wellestablished exception to the intracorporate conspiracy doctrine
in the criminal context applied. ECF No. 357. Therefore, in outlining
the law, the court applies the exception to the intracorporate
conspiracy doctrine recognized in the criminal context.
App.85a
the benefit of the corporation, even if such conduct
was against corporate policy or express instructions.
For GenPhar and Vaxima to be guilty, the government
must prove each of the following beyond a reasonable
doubt: (1) that the crime charged, here, conspiracy and
wire fraud, was committed by an employee or agent of
the corporation; (2) that, in committing the crime
charged, the employee or agent was acting within the
scope of his employment and within his apparent
authority; and (3) that, in committing the crime charged,
the employee or agent was acting on behalf of or for
the benefit of the corporation.
“To be acting within the scope of his employment,
an agent must be performing acts of the kind which
he is authorized to perform, and those acts must be
motivated—at least in part—by an intent to benefit
the corporation.” United States v. Automated Med.
Labs., Inc., 770 F.2d 399, 407 (4th Cir. 1985). An agent
may act for his own benefit while also acting for the
benefit of the corporation. The fact that the act was
unlawful and contrary to corporate policy does not
absolve the corporation of legal responsibility for the
act. It is not necessary for the government to prove
that the action of the agent or employee actually
benefitted the corporation. Id. The fact finder must
determine whether the agent or employee acted with
the intent to benefit the corporation. If, however, the
fact finder determines that the act of the employee or
agent was contrary to the interests of the corporation, or
that the act was undertaken solely to advance the
interests of the employee or agent, then the corporation
is not responsible, because the employee or agent
would be acting outside the scope of his employment.
App.86a
Responsible Corporate Officer
The defendant is liable for the corporation’s violations if he is a responsible corporate officer. To be a
responsible corporate officer, the government must
prove that the defendant had, by reason of his position
in the corporation, responsibility and authority either to
prevent in the first instance, or to promptly correct,
the violation alleged, and that he failed to do so. The
government does not have to prove that the defendant
brought about the alleged violation through some
wrongful action. The question is not whether the
defendant had a particular title but whether he bore
such a relationship to the corporation that it is appropriate to hold him criminally liable for failing to
prevent the violation alleged. See United States v.
Ming Hong, 242 F.3d 528, 531 (4th Cir. 2001) (“The
gravamen of liability as a responsible corporate officer
is not one’s corporate title or lack thereof; rather, the
pertinent question is whether the defendant bore such
a relationship to the corporation that it is appropriate
to hold him criminally liable for failing to prevent the
charged violations of the CWA.”).
LAW APPLICABLE TO UNDERLYING
SUBSTANTIVE OFFENSES OF THE
CONSPIRACY3
18 U.S.C. § 287
Title 18, United States Code, Section 287 makes
it a crime to present a false claim for money to an
3 The court will outline the law of the objects of the conspiracy
that are not also the basis of substantive charges in the Third
Superseding Indictment beyond the conspiracy charge. Those
App.87a
agency of the United States. In order for the defendant
to be found guilty, the government must prove each of
the following beyond a reasonable doubt: (1) that the
defendant made or presented a false, fictitious, or
fraudulent claim to an agency of the United States; (2)
that the defendant knew at the time that the claim was
false, fictitious, or fraudulent;4 and (3) that the claim
was material.
Although the statute makes no reference to materiality, courts have interpreted the statute to require
materiality as an element of the offense, in the same
manner as § 1001, as outlined below. United States v.
Snider, 502 F.2d 645, 652 n.12 (4th Cir. 1974) (“Implicit
within the utilization of the materiality standard
under § 287 and § 1001 is the notion that the criminal
intent necessary under the statute includes not only
an intention to make the statement but also an
intention to deceive or mislead the person or agency
to whom it is proffered.”).5
objects of the conspiracy that are also substantive offenses charged
in the indictment are fully outlined in the relevant portion below.
4 United States v. Ewing, 957 F.2d 115, 119 (4th Cir. 1992) (“[P]resenting false claims to an agency of the United States, a violation
of 18 U.S.C. § 287, consists of two elements: 1) making or
presenting a claim to any agency of the United States 2) knowing
such claim to be false, fictitious, or fraudulent.”).
5 In United States v. Greenberg, No. 87-5089, 1988 WL 21229, at
*4 n.2 (4th Cir. Mar. 8, 1988), the court indicated that “[w]e do not
here decide whether materiality is an element of § 287 and note
that some courts have recently concluded that it is not.” The
Second, Fifth, Sixth, Ninth and Tenth Circuits have all concluded
materiality is not an element. However, in United States v. Snider,
502 F.2d 645 (4th Cir. 1974), the court reversed the conviction of
a Quaker tax protester for violating 26 U.S.C. § 7205. In dicta, the
court stated that materiality has been required as an element of
App.88a
The word “claim” relates solely to the payment or
approval of a claim for money or property to which a
right is asserted against the government, based upon
the government’s own liability to the claimant. United
States v. Duncan, 816 F.2d 153, 155 (4th Cir. 1987)
(citing United States v. Cohn, 270 U.S. 339, 345-46
(1926)). A statement (or claim) is material if it has a
natural tendency to influence, or is capable of
influencing, the decision of the body to which it was
addressed. It is irrelevant whether the false statement
(or claim) actually influenced or affected the decisionmaking process. The capacity to influence must be
measured at the point in time that the statement or
claim was made. United States v. Sarihifard, 155 F.3d
301, 306 (4th Cir. 1998). It is no defense to a prosecution under this section that the government received
its money’s worth. See United States v. Blecker, 657
F.2d 629, 634 (4th Cir. 1981) (recognizing that § 287
does not require a showing of specific intent to defraud
the government and stating that “evidence that the
government got its money’s worth was no defense to”
proof that a claim submitted to the government is
either false, fictitious, or fraudulent).
18 U.S.C. § 1001
Title 18 U.S.C. § 1001 prohibits the making or
using of any false, fictitious, or fraudulent statements
§ 287 in the same manner as under § 1001 and cited Johnson v.
United States, 410 F.2d 38, 46 (8th Cir. 1969), where the Eighth
Circuit approved an instruction that included materiality. Snider,
502 F.2d at 652 n.12; but see United States v. Kellogg Brown &
Root, Inc., 525 F.3d 370, 378 (4th Cir. 2008) (materiality as an
element under the civil False Claims Act, 31 U.S.C. §§ 3729 et
seq.). Thus, in dicta, the Fourth Circuit interpreted § 287 to
include a materiality element.
App.89a
within the province of any government department or
agency. “To establish a violation of § 1001, it must be
proved that (1) the defendant made a false statement to
a governmental agency or concealed a fact from it or
used a false document knowing it to be false, (2) the
defendant acted ‘knowingly and willfully,’ and (3) the
false statement or concealed fact was material to a
matter within the jurisdiction of the agency.” Arch
Trading Co., 987 F.2d at 1095.
Courts have interpreted “false” as signifying
more than a mere untruth. To establish that a statement was false, the government must negate any reasonable interpretation that would make the defendant’s statement factually correct. United States v.
Anderson, 579 F.2d 455, 460 (8th Cir. 1978). Courts
have therefore developed materiality as an element of
the offense under § 1001. United States v. Snider, 502
F.2d 645, 652 (4th Cir. 1974). The test for materiality
is “whether the false statement has a natural tendency to influence, or was capable of influencing, the
decision of the tribunal in making a determination
required to be made.” Id. (quoting Weinstock v. United
States, 231 F.2d 699, 701-02 (D.C. Cir. 1956)). “[T]here
is no requirement that the false statement [actually]
influence or effect the decision making process of a
department of the United States government.” Arch
Trading Co., 987 F.2d at 1095. Thus, although the
false statement need not deceive someone in actuality,
it must be deceptive, calculated to induce agency
reliance or action. Id. (internal citations omitted).
App.90a
EVIDENCE OF CONSPIRACY6
A.
Conspiracy to Defraud the United States and
Its Agents by Obtaining Monies and Property
Through False and Fraudulent Statements,
Representations, and Promises
1) Agreement to defraud the government
There is sufficient evidence to establish an agreement between Dong, Wang, GenPhar, and Vaxima to
defraud the United States.
●
Dong testified that he established Vaxima as
a subsidiary of GenPhar. Wang testified that
Vaxima was established to provide services
to GenPhar. Wang also testified that Vaxima
employees were paid by GenPhar.
●
Employees of GenPhar worked for Vaxima
previously, including Elaine Van Voris and
John Johnston.
●
Ex. 3 & Ex. 4 – NIH Grant Application and
YR 1 Progress Report-Jan W. submitted the
grant applications and progress reports,
after Dong reviewed them as the principal
investigator, with time misrepresentations.
6 The court addressed the evidence and law as it pertains to all
objects of the conspiracy as charged and found that there was
sufficient evidence to prove conspiracy beyond a reasonable
doubt. In this outline, however, the court only addressed the law
and evidence at is pertains to three objects of the conspiracy, since
it was not necessary for the government to prove that Dong,
GenPhar, and Vaxima conspired to commit every object of the
conspiracy.
App.91a
●
According to Van Voris’s testimony and Wang’s
testimony, Wang handled all of the finances
and paid the construction costs out of the
same account where the grant money was
directly wired.
●
Ex. 83 & Ex. 84 – Holman and Sakalian timesheets; Holman testimony-Wang directed the
employees to input inaccurate time sheets and
the time was misrepresented in the progress
reports to correspond with the internal time
sheets.
●
Sakalian testified that Dong confronted him
about filling out the time sheets and said
that the way he filled them out according to
outside training was improper and told him
to fill them out in the manner in which Wang
directed.
●
Ex. 58, pg 49 – Army Modification 4 signed
by Dong on March 11, 2004 – $685,000.00 for
GMP Vaccine Production – Dong testified that
GenPhar never accomplished GMP Vaccine
Production because it was not a GMP facility
●
Ex. 58, pg 49 – Army Mod. 4 Budget signed
by Dong on 3/11/2004 – $412,400.00 for rabbit
toxicity study. Performed by Bridge in 2004;
BUT Ex. 3 NIH Grant Proposal in 2006 –
money in budget for toxicology and distribution study never performed again but reported
as part of NIH Marburg final report (Ex. 8)
●
Ex. 3, pg 8 – NIH Grant Proposal Budget 2006
– Molecular Medicine was supposed to get
$480,000.00 for GMP vaccination production,
but Dong testified that it never occurred.
App.92a
●
Ex. 3, pg 8 – NIH Grant Proposal Budget –
MUSC was supposed to receive $348,536.00
for toxicology/biodistribution studies and
GeneLogic was supposed to receive $373,000
.00 for standby toxicology studies – Wang
testified that she performed the work in house
for between $10,000–$15,000 to save money.
Dong testified that he knew Wang performed
the studies to save money
●
Ex. 8 – Final Progress report for NIH grant
– 2009 – Bridge study, performed in 2004
pursuant to Army Modification 4, was submitted as part of the final results for the
toxicology and biodistribution studies and
the GeneLogic Toxicology Studies under NIH
Grant – The testimony and evidence shows
that Wang performed the work in house for
less money and GenPhar did not report the
results of the non-GMP studies. Instead,
GenPhar reported a study paid for by the
Army 5 years prior as part of the final results
from the NIH grant for which they received
additional funds.
●
Ex. 65 – 3/8/07 – Email chain between Dong
and Dr. Pratt regarding NIH funding for
monkey testing. Dr. Pratt asked about the
specifics so he could plan for USAMRIID’s
obligations under the NIH grant. Dong notified
him that there would be some funding in
years 3 and 4. Pratt testified that USAMRIID
never received any money for monkey testing.
●
Ex. 3, pg 8 – NIH Grant Application 9/11/06$606,900.00 allocated for USAMRIDD monkey
testing
App.93a
●
Dr. Pratt testimony – He compared the monkey study results in the NIH and USAMRIID
progress reports and concluded that they are
the same study reported to both agencies a
year and a half apart
●
Ex. 67 – Army Progress Report for 9/02-5/07
– GenPhar represented that the biodistribution and toxicology study will be complete
in 3 months
●
Ex. 4 – NIH YR 1 Progress Report – June 25,
2007 – GenPhar reports the Bridge study
performed pursuant to Army grant as part of
the results – Dr. Repik testimony; she confronts GenPhar and Dong about the results
of the study being for Marburg and Ebola when
the funding is for Marburg only. GenPhar
then drops the results from the progress report
●
Ex. 50 – 5/15/09 – Final Bridge Report for
biodistribution and toxicology study – actual
studies were performed pursuant to Army
grant – reported in Ex. 8 2011 Final Progress
Report for NIH Marburg Grant
●
Dong testified that he knew Wang performed
the testing in-house to save money
●
Larry Leonard testified about Dong’s interviews regarding the “money earned” concept
used to pay for building; in interviews with
Agent Leonard, Dong expressed his familiarity with federal grants and his knowledge
of government grant rules and regulations
App.94a
●
Wang and Van Voris testimony – All funds
commingled, paid construction costs out of
the account
●
Exs. 41–47 – Various GenPhar shareholder
letters establish Dong’s familiarity with his
financial situation and his knowledge of the
grant limitations and restrictions
●
Exs. 30-32 – Federal Cash Transaction Report
(“CTRs”) submitted and signed by Dong
requested funding for NIH Grant – includes
a certification that “I certify to the best of my
knowledge and belief that this report is true
in all respects and that all disbursements have
been made for the purpose and conditions of
the grant or agreement.”
2) Overt act committed in furtherance of the
conspiracy to defraud
●
Ex. 4 – NIH Marburg Grant YR1 progress
report – Based on the testimony from Wang
and various GenPhar employees, the progress
reports misrepresented the time spent researching on the grant. Dong was the principal
investigator on the grant and Jan. W., an
employee of GenPhar, submitted the progress
report. Further, GenPhar was required to hire
QA/QC personnel under the terms of the grant.
Jan W. sent an email stating that the QA/QC
responsibilities were divided among other
employees; however, the government presented testimony that the QA/QC responsibilities
were never completed and GenPhar never
hired QA/QC personnel.
App.95a
●
Ex. 35 – Federal Cash Transaction Report
for period between 7/1/08–9/30/08 to NIH.
GenPhar submitted a request for payment
for $955,085.51.
●
Ex. 38 – NIH Summary of Payments for the
period outlined in Ex. 35. On August 19, 2008,
GenPhar requested payment of $233,900.00
to the U.S. Department of Health and Human
Services, Program Support Center, Financial
Management Service, Division Payment Management for reimbursement for the purchase
of a wave bioreactor.
●
Jan Van Voris testified that Wang directed
her to “drawdown” the funds for the bioreactor
before they would expire. Jan Van Voris submitted the request on behalf of GenPhar at
Wang’s direction.
●
Testimony presented during trial established
that the large wave bioreactor was never
purchased and that GenPhar purchased the
original smaller model prior to receiving the
NIH grant award.
3) Intent to agree to defraud
●
Van Voris testimony – Wang directed her to
make all the payment requests from grants
●
Wang testimony – Wang handled all finances,
knew about not paying for monkey testing,
performed in-house testing to save money,
directed employees to incorrectly input time
sheets, and paid construction costs directly
out of the grant funds
App.96a
●
Ex. 90 – Email from Zucker to other board
members – GenPhar’s knowledge of limitations
in the grants
●
Ex. 46 – GenPhar Shareholder letter – Dong
states that misuse of government funds is a
crime punishable by imprisonment and that
none of the funds can be used to repay any
loans – spent all investor money by March
2004
●
Ex. 41 – GenPhar Shareholder letter – Dong
states that GenPhar paid off the loan but has
no investment funds to support operations that
are not currently approved by the DOD –
company remains funded by Army and Navy
– spending of government funds is restricted
with clear statements of work and federal
laws
●
Ex. 44 – GenPhar Shareholder letter – Dong
states that GenPhar wants to have a manufacturing facility
●
Ex. 42 – GenPhar Investor letter – government
funds cannot be used to support a new building but only to upgrade or expand existing
building – government contracts and grants
have strict restrictions on indirect expenses
●
Ex. 91 – Email with Janine Danko – knowledge
of grant restrictions
●
Ex. 92 – Email response to Danko – more
knowledge about the grants
●
Ex. 43 – GenPhar shareholder letter – 7/6/09 –
Dong makes various representations, including that GenPhar continues to operate with
App.97a
government funding with significant limitations that are insufficient, that the building
is currently funded with GenPhar’s internally
generated funds earned from performing
various contracts, and that GenPhar’s intention is that these funds will be refinanced by a
mortgage and again become available for
future operation
●
B.
Dr. Repik testimony – When she visited the
GenPhar site, she asked Dong how the
building was funded and he told her investor
funds, even though he knew there was no
investor money left, evidenced by his representations in the shareholder letters. His
assertions to Dr. Repik are contrary to the
shareholder letters regarding the remaining
investor funds, evidencing his intent to
defraud.
Conspiracy to Commit Wire Fraud
1) Two or more persons agreed to do
something which federal law prohibits,
that is here to violate 18 U.S.C. § 1343
●
Wang and Van Voris testified that Wang
directed all the drawdowns from the grant
funds
●
Exs. 30–37 – CTRs signed by Dong and other
GenPhar employees requesting payment of
grant funds. Include a certification that “to
the best of my knowledge and belief . . . this
report is true in all respects and that all
disbursements have been made for the purpose
and conditions of the grant or agreement.”
App.98a
●
Ex. 38 – Summary of all payments made to
GenPhar pursuant to the NIH Grant
●
Exs. 41–47 – various GenPhar Shareholder
Letters – Dong knew the restrictions on the
grant funds and knew that the only operating
money was from grant funds
●
Wang testified that all of the money was
commingled into a single account from which
all construction costs were paid and knew
that there was no more investor money
●
Ex. 48 – Checks paid for lobbying costs and
construction expenses from GenPhar, some
of which are signed by Dong after the date
that Dong says the company has been
“operating in black” (Ex. 45)
2) Dong, GenPhar, and Vaxima knew of the
conspiracy and willfully joined the
conspiracy, and
●
Ex. 46 – GenPhar Shareholder letter – misuse
of government funds is a crime punishable
by imprisonment and that none of the funds
can be used to repay any loans – spend all
investor money by March 2004
●
Ex. 41 – GenPhar Shareholder letter – paid
off the loan but has no investment funds to
support operations that are not currently
approved by the DOD – company remains
funded by Army and Navy – spending of gov’t
funds is restricted with clear statements of
work and federal laws
App.99a
●
Ex. 44 – GenPhar Shareholder letter – want
to have a manufacturing facility
●
Ex. 42 – GenPhar Investor letter-government
funds cannot be used to support a new building but only to upgrade or expand existing
building – government contracts and grants
have strict restrictions on indirect expenses
●
Ex. 91 – Email with Janine Danko – knowledge
of grant restrictions
●
Ex. 92 – Email response to Danko – more
knowledge about the grants
●
Ex. 43 – GenPhar Shareholder letter – 7/6/09 –
Dong makes various representations, including that GenPhar continues to operate with
government funding with significant limitations that are insufficient, that the building
is currently funded with GenPhar’s internally
generated funds earned from performing
various contracts, and that GenPhar’s intention is that these funds will be refinanced by a
mortgage and again become available for
future operation
●
Van Voris testimony – Wang directed her to
make all the payment requests from grants
●
Wang testimony – Wang handled all finances;
knew about not paying for monkey testing;
in-house testing to save money; Wang directed
employees to incorrectly input time sheets;
paid construction costs directly out of the
grant funds
●
Larry Leonard testimony – Dong explained
the “money earned” concept and that he used
App.100a
the money left over to pay for the building.
Dong also stated that he was very knowledgeable as to federal grants and the restrictions and limitations with NIH grants
●
Dong signed checks paid for construction and
lobbying costs and was fully aware of the
financial situation and the lack of operating
funds
3) At some time during the existence of the
conspiracy, one of the members of the
conspiracy knowingly performed one of
the overt acts charged in the indictment
to accomplish the purpose of the
agreement
●
Ex. 3, pg 6 – NIH Grant Application – states
that GenPhar has a wave bioreactor and
requests $233,900 in equipment funding to
purchase new large wave bioreactor
●
Ex. 4 – NIH Grant YR 1 Progress Report –
GenPhar still has not purchased larger wave
bioreactor and requests permission to purchase smaller model
●
Ex. 35 – Federal Cash Transaction Report
for period between 7/1/08– 9/30/08 to NIH.
GenPhar submitted a request for payment
for $955,085.51.
●
Ex. 38 – NIH Summary of Payments for the
period outlined in Ex. 35. On August 19, 2008,
GenPhar requested payment of $233,900.00
from the U.S. Department of Health and
Human Services, Program Support Center,
App.101a
Financial Management Service, Division Payment Management for reimbursement for
the purchase of a wave bioreactor.
C.
●
VanVoris testimony – Wang directed her to
draw down the money for the bioreactor so
they would not lose it
●
Wang testimony – told VanVoris to draw down
the money so they would not lose it
●
CTRs wiring money to GenPhar
●
Ex. 48 – checks payable to lobbying firm and
for construction costs signed by Dong and
other GenPhar employees
●
Exs. 30-32 – CTRs signed by Dong, certifying
that the report is true in all respects and that
the disbursements have been made for the
purpose and conditions of the grant or agreement
●
Ex. 93 summary of payments for grants –
based on Ex. 61, 74, 38
Conspiracy to Make False, Fictitious and
Fraudulent Requests to Federal Agency
1) Two or more persons agreed to do
something which federal law prohibits,
that is here to violate 18 U.S.C. § 287
●
Holman and John Johnston testimony, as well
as Wang’s testimony-Wang directed employees to falsify time sheets
●
Ex. 4 – NIH Grant YR 1 Progress Report –
time was reported to correspond with internal
time sheets, which inaccurately represented
App.102a
the amount of time spent by the employees
on the grants
●
Sakalian testimony – Dong told Sakalian
employee to enter his time “correctly” or it
would get him in trouble. By correctly, Dong
was referring to the method Wang told the
employees to use, which, although it matched
the grant requirements, was actually an inaccurate representation of the time spent on
grant research.
●
Ex. 3 – NIH Grant-Dong was the principal
investigator on the NIH grant and testified
that he read all submissions; would have
seen that the time submitted was inaccurate
●
Ex. 58, pg 49 – Army Modification 4 signed
by Dong on March 11, 2004 – $685,000.00 for
GMP Vaccine Production – Dong testified that
GenPhar never accomplished GMP Vaccine
Production because it was not a GMP facility
●
Ex. 58, pg 49 – Army Modification 4 Budget
signed by Dong on 3/11/2004-$412,400.00 for
rabbit toxicity study. Performed by Bridge in
2004; but Ex. 3 NIH Grant Proposal in 2006
– money in budget for toxicology and distribution study never performed again but
reported as part of NIH Marburg final report
●
Ex. 3, pg 8 – NIH Grant Proposal Budget
2006-Molecular Medicine is supposed to get
$480,000.00 for GMP vaccination production,
but Dong testified that it never occurred.
●
Ex. 3, pg 8 – NIH Grant Proposal Budget –
MUSC supposed to receive $348,536.00 for
App.103a
toxicology/biodistribution studies and
GeneLogic supposed to receive $373,000.00
for standby toxicology studies – Wang testified
that she performed the work in house for
between $10,000 $15,000 to save money.
Dong testified that he knew Wang performed
the studies to save money
●
Ex. 8 – Final Progress report for NIH grant
– 2009 – Bridge study, performed in 2004
pursuant to Army Modification 4, submitted
as part of the final results for the toxicology
and biodistribution studies and the GeneLogic
Toxicology Studies under NIH Grant – The
testimony and evidence shows that Wang
performed the work in-house for less money
and GenPhar did not report the results of the
non-GMP studies, but instead reported a
study paid for by the Army 5 years prior as
part of the final results from the NIH grant
for which they received additional funds, i.e.,
double payment.
●
Wang and Dong testimony – tests were performed in-house for much less. Other entities
were supposed to be paid to perform the
testing. GenPhar received money for the
testing, even though it was performed inhouse.
●
Wang testimony – told Dong that USAMRIID
was never paid for monkey testing
●
As more fully outlined above, Dong knew that
the Bridge toxicology and biodistribution study
results were represented to multiple agencies
and also paid for by multiple agencies
App.104a
2) Dong, GenPhar, and Vaxima knew of the
conspiracy and willfully joined the
conspiracy, and
●
Jan W. testified that Dong reviewed all of the
grant applications and progress reports and
was fully aware of the representations made
●
Dong was the principal investigator on the
grants
3) At some time during the existence of the
conspiracy, one of the members
knowingly performed one of the overt acts
charged in order to accomplish the
purpose of the agreement
●
Ex. 4 – NIH Marburg Grant YR 1 Progress
Report – inaccurate time misrepresentations
●
Ex. 5 – Revised time allocations are also
inaccurate. Includes email from Jan W. “correcting” the prior inaccurate time allocations.
The revised time allocations still include the
inaccurate time allocations as testified by Jan
W. and Holman, who both testified that the
key personnel reports were inaccurate. Jan
W. copied Dong on the email explaining the
budget differences for the key personnel
reports.
●
Holman testimony – he was inaccurately representing his lab work. Did not spend his time
researching on the grants as represented but
rather spent his time on other projects or
submitting grant proposals.
App.105a
●
Ex. 58, pg 49 – Army Mod. 4 Budget signed by
Dong – includes the funding for GMP vaccine
production and toxicity study in rabbits that
was to be performed by outside entities but
was performed by Wang in-house. Wang testified that Dong told her any money they
saved with her in-house testing would belong
to GenPhar
COUNT SEVEN: Theft of Government Property
The government charges that Dong did willfully
and knowingly embezzle, steal, purloin, and convert
to his own use over $1,000.00 belonging to the United
States by submitting Federal Cash Transaction Reports
(“CTR”) to the DPM for NIH grants that falsely certified
that all disbursements were made for the purposes
and conditions of the grant in order to receive federal
grant monies in violation of 18 U.S.C. §§ 641 and 2.
Specifically, Count 7 alleges that Dong, GenPhar, and
Vaxima submitted a CTR on October 8, 2008.
Counts 2-6 and 8-9 alleged further instances of
theft of government property. However, those counts
were dismissed by government motion on November
4, 2014, ECF No. 471. GenPhar and Vaxima were both
found guilty of Count Seven after the previous trial.
APPLICABLE LAW
Title 18, United States Code, Section 641 makes
it a crime to steal property, or possess stolen property,
belonging to the United States. For the defendant to
be found guilty, the government must prove each of
the following elements beyond a reasonable doubt: (1)
that the defendant embezzled, stole, purloined, or
knowingly converted to his own use or the use of
App.106a
another any record, voucher, money, or thing of value;
(2) that the record, voucher, money, or thing of value
belonged to the United States and was valued in
excess of $1,000.00; and (3) that the defendant did so
willfully.
Embezzle means the deliberate taking or retaining
of the property of another with the intent to deprive
the owner of its use or benefit by a person who has
lawfully come into the possession of the property. See
United States v. Smith, 373 F.3d 561, 564-65 (4th Cir.
2004). Steal means to take away from a person in lawful possession without right with the intention to keep
wrongfully. Morissette v. United States, 342 U.S. 246,
271 (1952). Conversion is the act of control or dominion
over the property of another that seriously interferes
with the rights of the owner. The act of control or
dominion must be without authorization from the owner.
The government must prove both that the defendant
knew the property belonged to another and that the
taking was not authorized. See United States v.
Stockton, 788 F.2d 210, 216 (4th Cir. 1986). Conversion,
however, may be consummated without any intent to
keep and without any wrongful taking, where the
initial possession by the converter was entirely lawful.
Conversion may include misuse or abuse of property.
It may reach use in an unauthorized manner or to an
unauthorized extent of property placed in one’s custody
for limited use. Money rightfully taken into one’s
custody may be converted without any intent to keep
or embezzle it merely by commingling it with the
custodian’s own, if he was under a duty to keep it separate and intact. Morissette, 342 U.S. at 271-72. The
government does not have to prove ownership, but the
government must prove that the United States had
App.107a
some interest in the property. United States v. Mack,
No. 89-5520, 1990 WL 26880, at *2 (4th Cir. Feb. 26,
1990) (citing United States v. Benefield, 721 F.2d 128,
129 (4th Cir. 1983)). “The Fourth Circuit takes a broad
view of what constitutes a ‘thing of value of the United
States.’” United States v. Gill, 193 F.3d 802, 804 (4th
Cir. 1999).
It is not enough for the government to prove that
the conveyance was without authority. The government must also prove that the defendant either knew
that he was conveying the record, voucher, money, or
thing of value without authority or that he acted with
reckless disregard as to whether he had authority. It
is a defense to a charge of conveyance without authority that the defendant either had actual authority or
that he believed he had authority and that this belief
was reasonable under all of the circumstances.
A person acts willfully if he acts intentionally and
pur
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