Securities and Exchange Commission v. Yang
1:20-cv-04427
| E.D.N.Y | Nov 4, 2022Background
- SEC sued Yinghang “James” Yang and Yuanbiao Chen for insider trading under Section 10(b) and Rule 10b-5; Yang pleaded guilty and Chen entered a consent judgment that left civil-penalty amount to the court.
- From June–Oct 2019 Yang supplied index-related nonpublic information; Yang and Chen executed 14 option trades yielding $912,082 in profits.
- Trades were executed through a brokerage account Chen opened (he lied on the application); Chen placed at least two trades after speaking with Yang and disbursed $221,000 to himself and $100,000 to Yang.
- The scheme ended when Chen’s broker questioned the trading. Chen expressed concern about legality in texts and had limited income (owner of a sushi restaurant earning ~$12–18k/year).
- Chen held substantial brokerage assets (reported >$175,000; parties represented at oral argument he had at least $250,373.98 as of Sept. 30, 2022), and the consent judgment set a penalty range of $123,000–$663,000 to be determined by the court.
- The court imposed a civil penalty of $246,000 (double the consent-judgment minimum and $25,000 above amounts Chen disbursed to himself).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appropriate civil penalty under 15 U.S.C. § 78u-1 | Seek maximum ($663,000), i.e., treble Chen’s distributions to himself | Seek lower penalty based on limited role, lack of knowledge of source, and low income | Court imposed $246,000 (intermediate sanction) |
| Egregiousness & scienter | Chen was culpable: opened account, placed trades, distributed profits | Chen not mastermind; limited understanding of source; expressed concern | Conduct was culpable but not highly egregious; Chen understood trading was wrong |
| Harm/risk to others | Insider trading harms markets; treble penalties justified to deter | Chen’s trades didn’t cause extraordinary individual losses | No substantial identifiable losses to others; risk limited to market integrity |
| Ability to pay / deterrence | Chen has brokerage assets and will likely trade again; requires deterrent penalty | Low income and limited future earning capacity warrant reduction | Court considered assets and future trading; applied a strong but not maximal penalty |
Key Cases Cited
- Universal Express, Inc. v. SEC, 646 F. Supp. 2d 552 (S.D.N.Y. 2009) (deterrence and market confidence justify civil penalties)
- SEC v. Palmisano, 135 F.3d 860 (2d Cir. 1998) (goals of securities enforcement and penalties)
- SEC v. Conradt, [citation="696 F. App'x 46"] (2d Cir. 2017) (courts determine penalties in light of facts)
- S.E.C. v. Haligiannis, 470 F. Supp. 2d 373 (S.D.N.Y. 2007) (factors for assessing civil penalties)
- Sec. & Exch. Comm'n v. Rajaratnam, 918 F.3d 36 (2d Cir. 2019) (applying Haligiannis factors)
- United States v. O'Hagan, 521 U.S. 642 (1997) (insider trading undermines market integrity)