Securities & Exchange Commission v. Contorinis
743 F.3d 296
| 2d Cir. | 2014Background
- Contorinis, a Managing Director at Jeffries & Co., traded on material nonpublic information supplied by Stephanou of UBS in Albertson’s stock via the Paragon Fund, which Contorinis co-managed and controlled; the Paragon Fund realized substantial profits and avoided losses from these trades.
- The SEC civil action sought disgorgement of $7,260,604 tied to the Paragon Fund’s illicit profits, civil penalties, and an injunction; a prior criminal case had resulted in a forfeiture judgment based on Contorinis’s personal gains.
- Contorinis was convicted in a criminal trial; on remand, the district court recalculated the criminal forfeiture to reflect Contorinis’s personal gains, but the SEC proceeded with civil disgorgement targeting the Paragon Fund’s gains.
- The district court granted summary judgment in the SEC’s favor, ordering disgorgement of the full Paragon Fund gains ($7,260,604, less any criminal forfeiture), plus prejudgment interest, and a permanent injunction.
- Contorinis appeals challenging (a) the district court’s authority to disgorge gains that accrued to a third party fund he controlled, (b) the imposition of prejudgment interest on the entire disgorgement amount, and (c) the injunction; the court affirms, holding the district court had discretion to allocate disgorgement liability to the wrongdoer and to impose the requested remedies.
- Dissenting Judge Chin argues the disgorgement should be limited to amounts actually received or controlled by Contorinis and that the district court erred in ordering disgorgement of third-party gains.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a trader may be disgorged for profits earned by a third-party fund he controlled | Warde-like rule: tipper gains are attributable to tipper regardless of direct control | Disgorgement should be limited to profits personally realized or controlled by the wrongdoer | Yes; district court may allocate disgorgement to the wrongdoer for third-party gains |
| Whether prejudgment interest may be based on the full disgorgement amount | Interest on entire illicit gain appropriate to deter unjust enrichment | Interest should not extend beyond personally realized gains | Yes; prejudgment interest on the full disgorgement amount is permissible |
| Whether the permanent injunction against future securities-law violations was appropriate | Deterrence warranted by fraud scheme and ongoing risk | Injunction excessive given conduct and remorse shown at sentencing | Yes; injunction warranted and not an abuse of discretion |
Key Cases Cited
- SEC v. Fischbach Corp., 133 F.3d 170 (2d Cir. 1997) (disgorgement to deprive violators of ill-gotten gains; remedial not punitive)
- SEC v. Tome, 833 F.2d 1086 (2d Cir. 1987) (disgorgement as an equitable remedy to prevent unjust enrichment)
- First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir. 1996) (district court broad discretion in ordering disgorgement; amount must be a reasonable approximation of profits)
- SEC v. Warde, 151 F.3d 42 (2d Cir. 1998) (tippee's gains attributed to tipper; supports liability for tipper's disgorgement of tippee profits)
- Tex. Gulf Sulphur Co., 446 F.2d 1301 (2d Cir. 1971) (tipper liability for tippee profits; foundation for disgorgement principles)
- SEC v. Cavanagh, 445 F.3d 105 (2d Cir. 2006) (disgorgement can be imposed on those who hold ill-gotten funds for others without legitimate claim)