Securities & Exchange Commission v. Rosenthal
2011 U.S. App. LEXIS 11684
| 2d Cir. | 2011Background
- Rosenthal family finances organized through Aragon Partners LP and Aragon Capital Management LLC, controlled by Amir Rosenthal.
- Amir and Ayal traded on material nonpublic information obtained from Heyman and PwC, through Aragon accounts (Project AA and Project Victor).
- Trades involved sale of puts and purchases of calls; the target merger did not occur and no profits were realized or losses avoided from these trades.
- In February 2007, Amir, Ayal, and Heyman pled guilty in a criminal case to conspiracy to commit securities fraud, including insider trading admissions by Amir and tipping behavior by Ayal and Heyman.
- SEC filed civil enforcement in 2007; district court granted partial summary judgment against Amir and Ayal on the trades and imposed third-tier penalties under §21(d)(3).
- District court later vacated the civil monetary penalties on appeal, holding that §21(d)(3) penalties were not available for these insider-trading violations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §21(d)(3) penalties apply to insider trading with no profit. | SEC contends violations are 'subject to' §21A penalties even if no profit is made. | Rosenthal argues penalties under §21(d)(3) require profit or loss avoidance under §21A(a)(2). | Penalties under §21(d)(3) are not available for these insider-trading violations. |
| What 'subject to' means in §21(d)(3) when applying §21A penalties. | Defendants are exposed to penalties because insider trading invokes SEC authority; profits are irrelevant to liability. | Exposure to penalties should depend on profits under §21A(a)(2). | The court found the text ambiguous but ultimately concluded §21(d)(3) penalties cannot be applied here, given Congressional history limiting §21A for insider trading. |
Key Cases Cited
- United States v. Fuller, 627 F.3d 499 (2d Cir. 2010) (statutory interpretation and de novo review standard)
- United States v. Farhane, 634 F.3d 127 (2d Cir. 2011) (interpretation of insider trading provisions and statutory structure)
- SEC v. Patel, 61 F.3d 137 (2d Cir. 1995) (determine profits and losses from insider trading for penalties)
- Auer v. Robbins, 519 U.S. 452 (1997) (Chevron deference not applicable when agency action is in litigation, but persuasive)
- Marvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002) (construct interpretation to avoid absurd results)
- Dorozhko v. SEC, 574 F.3d 42 (2d Cir. 2009) (textual history of §21(d)(3) and §21A)
- Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278 (2d Cir. 2005) (avoidance of absurd results in statutory interpretation)