S.E.C. v. Rajaratnam, 918 F.3d 36

Raj Rajaratnam was founder and portfolio manager of Galleon; convicted after an 8‑week criminal trial for insider trading in five stocks and sentenced to 132 months, a $10M fine, and $53.8M forfeiture.
The SEC brought a parallel civil action seeking injunction, disgorgement (mooted by criminal forfeiture), and a civil penalty under Exchange Act § 21A (treble “profit gained or loss avoided”).
The district court accepted a base figure of $30,935,235 as the profit/loss avoided from the illegal trades Rajaratnam executed (profits largely credited to Galleon/Goel accounts).
The district court trebled that amount and imposed the statutory maximum civil penalty of $92,805,705, finding egregious, recurrent misconduct, substantial investor harm, high scienter, and ability to pay.
Rajaratnam appealed, arguing (1) Section 21A’s treble cap must be keyed to the defendant’s personal profit (≈ $4.7M), and (2) the court abused its discretion by relying on his wealth and failing to offset civil penalty in light of prior criminal punishment.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether §21A(a)(2)’s cap is measured by total profits generated by the unlawful trades or only the defendant’s personal profit	SEC: §21A penalty may be based on the profitability of the violation — i.e., total profits/losses avoided caused by defendant’s trades	Rajaratnam: cap applies to the defendant’s own pecuniary gain only (≈ $4.7M)	Court: §21A permits basing penalty on total profit/loss avoided from the unlawful trades (treble applied to $30.9M)
Whether district court abused discretion in imposing treble penalty by (a) referencing defendant’s wealth and (b) not offsetting for criminal punishment	SEC: court may consider wealth to ensure deterrent effect and may impose civil penalties in addition to criminal sanctions	Rajaratnam: consideration of wealth improperly aggravated penalty; court failed to account for substantial criminal punishments already imposed	Court: no abuse — wealth is a permissible factor to ensure punishment is deterrent and collectible; parallel criminal sanctions are relevant but not dispositive; treble penalty upheld

United States v. Contorinis, 692 F.3d 136 (2d Cir.) (forfeiture generally limited to assets/benefits in defendant’s possession or control)
SEC v. Contorinis, 743 F.3d 296 (2d Cir.) (civil disgorgement may reach profits directed to others when defendant generated those illicit gains)
SEC v. Rosenthal, 650 F.3d 156 (2d Cir.) (maximum §21A penalty based on profitability of the violation)
SEC v. Warde, 151 F.3d 42 (2d Cir.) (upholding civil penalties based on trading gains of tippees tied to tipper’s misconduct)
United States v. Rajaratnam, 719 F.3d 139 (2d Cir.) (affirming Rajaratnam’s criminal convictions)
SEC v. Lipson, 278 F.3d 656 (7th Cir.) (permitting consideration of defendant’s wealth in setting civil penalties)
United States v. Zukerman, 897 F.3d 423 (2d Cir.) (defendant’s wealth relevant to assessing deterrent effect of fines)