SEC v Contorinis: Second Circuit gives SEC a powerful new tool — for now - .PDF file.
By Paul N Monnin and Zachary LeVasseur
The Second Circuit Court of Appeals has broadened the Securities and Exchange Commission’s (SEC’s) power to seek civil disgorgement of profits from insider trading violations even where an individual did not personally profit from the illegal trades.
In its panel opinion in SEC v Contorinis, decided on 18 February, the Second Circuit upheld a trial court order requiring that Joseph Contorinis, the former managing director of the Jeffries Paragon Fund, disgorge more than $7m in unlawful profits obtained by the fund as a result of Contorinis’s trading on material non-public information. This is despite the fact that he did not trade with his own personal assets and his personal compensation from the trades amounted to only $427,875.
In a two-to-one vote, the Second Circuit panel rejected Contorinis’s argument that disgorgement is limited to personal, as opposed to institutional, profit on insider trading activity. The panel analogised the relationship between a fund manager and the fund to that of a tipper and a tippee, holding that ‘the district courts possess discretion to allocate disgorgement liability for insider trading to those responsible for the illegal acts, including to those with investment power over third-party accounts used to make illegal investments as well as to tippers’…
Click on the link below to read the rest of the DLA Piper briefing.