A CROSS-SECTION OF CASES THAT CITE The Insider Trading and Securities Fraud Enforcement Act of 1988--Presented in the form of Westlaw Headnotes

1. Injuctions

Alleged insider trading violations, dating back to 1981, were not so remote that they could not be considered in determining whether grant of injunctive relief under Insider Trading Sanctions Act was appropriate. S.E.C. v. Willis, S.D.N.Y.1991, 777 F.Supp. 1165, on reargument 787 F.Supp. 58. Securities Regulation 134

Permanent injunction barring violations of securities laws would not be imposed upon chief executive officer (CEO) of corporation engaged in radio broadcasting, found to have provided insider information enabling brother and father to acquire stock of proposed targets and realize profits when proposed acquisitions became public information; CEO had not previously leaked insider information, and he did not personally trade in stock of target corporations, precluding conclusion he would engage in further violations in absence of injunction. U.S.S.E.C. v. Ginsburg, S.D.Fla.2002, 2002 WL 1835810, Unreported. Securities Regulation 171

2. Laches

Equitable defense of laches was not available to broker charged with insider trading since Securities and Exchange Commission (SEC) was acting in public interest by attempting to enforce effectively federal securities laws under its statutory mandate and any judgment potentially entered would serve public's interest in assuring compliance with those laws. S.E.C. v. Willis, S.D.N.Y.1991, 777 F.Supp. 1165, on reargument 787 F.Supp. 58. Securities Regulation 134

3. Limitations

Five-year statute of limitations for seeking to impose a civil fine, penalty, or forfeiture did not apply to disgorgement action brought by the Securities and Exchange Commission (SEC). S.E.C. v. DiBella, D.Conn.2006, 409 F.Supp.2d 122. Securities Regulation 134

One-year and three-year statute of limitations under Lampf for implied private causes of action under Securities Exchange Act did not apply in Securities and Exchange Commission (SEC) enforcement action seeking injunctive relief, disgorgement order, and civil penalties. S.E.C. v. O'Hagan, D.Minn.1992, 793 F.Supp. 218. Securities Regulation 134

Securities and Exchange Commission (SEC), in civil action for injunctive relief based upon violations of insider trader laws, is not bound by any specifically delineated statute of limitations; effect of absence of limitations period is moderated in part by court's consideration of remoteness of defendant's past violations in deciding whether to grant requested relief. S.E.C. v. Willis, S.D.N.Y.1991, 777 F.Supp. 1165, on reargument 787 F.Supp. 58. Securities Regulation 134

4. Amount of penalty

In light of defendant's negative net worth of between $50,000 and $100,000, court would impose a $25,000 penalty for insider trading in securities enforcement action filed by Securities and Exchange Commission (SEC). S.E.C. v. Pardue, E.D.Pa.2005, 367 F.Supp.2d 773. Securities Regulation 149

Civil penalty of $34,758, equal to loss avoided, would be assessed under Insider Trading and Securities Fraud Enforcement Act (ITSFEA), against former director of corporation found by jury to have engaged in insider trading by selling stock with nonpublic knowledge of corporate business difficulties; violation was minor, director had net worth sufficient to absorb penalty, there was no concealment of trading, there would be no other sanctions, and defendant was not employed in securities industry. S.E.C. v. Happ, D.Mass.2003, 295 F.Supp.2d 189, affirmed 392 F.3d 12. Securities Regulation 149

Circumstances justified imposition of civil penalty of $435,687, equal to amount of profit obtained from illegal insider securities trading, in violation of § 10(b); trader entered into series of profitable securities transactions based upon insider information obtained from accomplice, who had access to confidential and sensitive financial information due to his connection with investment banking firm. S.E.C. v. Freeman, S.D.N.Y.2003, 290 F.Supp.2d 401. Securities Regulation 149

District court acted within its discretion when, in civil enforcement action by Securities and Exchange Commission (SEC) for alleged securities fraud, it permanently enjoined company's owner, who was found by jury to have violated Securities Act, Securities Exchange Act, and Rule 10b-5 and to have engaged in insider trading, from committing future violations of federal securities law, and barred him from serving as officer or director of public company and from participating in offer of "penny stock," required him to disgorge profits from his insider trading, and imposed fine of $120,000 and penalty for insider trade in amount of one times his illegal profits. S.E.C. v. Johnson, C.A.3 (N.J.) 2006, 174 Fed.Appx. 111, 2006 WL 869162, Unreported. Securities Regulation 150.1

Civil penalty of $1 million was appropriate, following determination that chief executive officer (CEO) of corporation engaged in radio broadcasting business provided advance insider information regarding proposed acquisitions to brother; while tippees realized profits of approximately $1.8, allowing for maximum statutory penalty of 5.4 million, CEO had not previously leaked insider information, and he did not personally trade in stock of target corporations. U.S.S.E.C. v. Ginsburg, S.D.Fla.2002, 2002 WL 1835810, Unreported. Securities Regulation 149

5. Statutory penalties

Imposition of civil penalties on defendants convicted of securities fraud and tender offer fraud in connection with insider trading scheme was warranted under the Insider Trading and Securities Fraud Enforcement Act (ITSFEA); defendants perpetrated a fraud involving repeated securities law violations, considerable profits, and a high degree of scienter, and their scheme lasted almost four years. U.S. S.E.C. v. Svoboda, S.D.N.Y.2006, 409 F.Supp.2d 331. Securities Regulation 149

In determining whether to assess civil penalty for insider trading, under Insider Trading and Securities Fraud Enforcement Act (ITSFEA), courts are to consider (1) the egregiousness of the violations, (2) the isolated or repeated nature of the violations, (3) the defendant's financial worth, (4) whether the defendant concealed his trading, (5) what other penalties arise as the result of the defendant's conduct, (6) and whether the defendant is employed in the securities industry. S.E.C. v. Happ, D.Mass.2003, 295 F.Supp.2d 189, affirmed 392 F.3d 12. Securities Regulation 149

Statutory penalty under Insider Trading Sanctions Act was warranted in Securities and Exchange Commission (SEC) civil enforcement action, in addition to disgorgement, and equal to amount of loss avoided, given defendant's continued refusal to acknowledge full extent of his knowledge and role in corporation's accounting fraud and given defendant's position as CEO and chairman and his active role in perpetrating fraud. U.S.S.E.C. v. Henke, N.D.Cal.2003, 275 F.Supp.2d 1075, affirmed 130 Fed.Appx. 173, 2005 WL 1060243. Securities Regulation 149

6. Nominal damages

Nominal damages only would be awarded to Securities and Exchange Commission (SEC) on SEC's motion for disgorgement and penalties in civil enforcement action against securities broker; broker had been convicted on criminal charges under misappropriation theory of insider trading, had no prior criminal history, had consented to entry of final judgment in civil action prohibiting future violations, and had ill-gotten gains of only approximately $5,400 but had spent more than $75,000 on legal fees, and there was no reason to reward SEC for spending large amount of public money to pursue broker. S.E.C. v. Smath, E.D.N.Y.2003, 277 F.Supp.2d 186. Securities Regulation 154.1

7. Interest

Securities and Exchange Commission (SEC) was entitled to prejudgment interest on defendants' illegal gains in enforcement action brought after defendants were convicted of securities fraud and tender offer fraud in connection with insider trading scheme, where scheme extended almost four years, implicated over 20 issuers, and involved numerous forms of deceptive conduct. U.S. S.E.C. v. Svoboda, S.D.N.Y.2006, 409 F.Supp.2d 331. Interest 39(2.20)

Prejudgment interest would be assessed on amount of loss of stock value former corporate director avoided by trading on nonpublic adverse material information; director acted with scienter, deliberately having use of money in question for considerable period of time. S.E.C. v. Happ, D.Mass.2003, 295 F.Supp.2d 189, affirmed 392 F.3d 12. Interest 39(2.20)

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