Securities & Exchange Commission v. Sabrdaran
252 F. Supp. 3d 866
N.D. Cal.2017Background
- SEC sued Sasan Sabrdaran (InterMune drug-safety employee) and Farhang Afsarpour (friend/trader) for insider trading based on tip about imminent EU approval of Esbriet in December 2010; after trial a jury found for the SEC on all elements (tip, knowledge, personal benefit, and "in connection with").
- Afsarpour placed spread bets with IG Index (London) and bought InterMune stock through a New York broker; IG Index hedged many spread bets via CFDs and broker relationships (Cheuvreux, Macquarie).
- Key circumstantial evidence: timing of phone calls between Sabrdaran and Afsarpour, surge in Afsarpour’s risky trades immediately before the announcement, emails urging friends to invest, deleted computer/Facebook evidence, and testimony about close friendship.
- Defendants moved for JMOL/new trial contesting (a) existence of a tip and personal-benefit instruction, and (b) whether spread bets were "in connection with" U.S. securities; the Court denied the motions.
- On remedies, the Court (a) permanently barred Sabrdaran from serving as a public-company officer/director, (b) ordered disgorgement by Afsarpour of his profits from direct stock purchases and hedged spread bets (and disgorgement jointly and severally against Sabrdaran limited to Afsarpour’s direct purchases and Afsarpour’s own hedged spread bets), (c) awarded prejudgment interest against Afsarpour (with different rates by category) but not against Sabrdaran, (d) declined to impose civil penalties on Sabrdaran, and (e) declined further injunctive relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether verdict should be set aside (JMOL/new trial) because tip/intent not proved | SEC: circumstantial evidence (calls, timing, trading pattern, encouragement of friends, deleted records) supports tip, scienter, and personal benefit inference | Defendants: no direct evidence; innocent explanations (market research, mistake in ticker, no intent to benefit recipient) | Denied — jury verdict supported by substantial circumstantial evidence; credibility issues for defendants weighed against them |
| Proper standard/instruction for "personal benefit" (Dirks/Salman v Newman) | SEC: personal benefit includes gifts to friends; Salman confirms benefit can be inferred from relationship and gift; jury instruction proper | Defendants: instruction should require tipper’s intent to benefit the tippee (Newman approach); objected late | Denied — court applied Salman/Dirks (gift-to-friend inference); no plain error; verdict not against weight of evidence |
| Whether Afsarpour’s spread bets were "in connection with" U.S. securities | SEC: IG Index hedging (CFDs/hedges) linked spread bets to U.S. securities markets; scheme need only have nexus to any securities transaction | Defendants: spread bets are not U.S. securities; hedging evidence attenuated/insufficient under Morrison | Denied — instruction proper; evidence that many spread bets were hedged via CFDs and U.S. market purchases gave sufficient nexus; stock purchases alone also satisfied the requirement |
| Remedies scope: disgorgement, joint-and-several liability, interest, officer/director bar, civil penalties, injunction | SEC: disgorgement of profits from spread bets and downstream tippees; joint-and-several liability for Sabrdaran; prejudgment interest; bar/penalties/injunction requested | Defendants: limit disgorgement to amounts each earned; Sabrdaran not jointly/severally liable for downstream profits; challenge inclusion of hedges and use of higher interest/penalty | Partial grant to SEC: disgorgement ordered for Afsarpour’s direct stock profits and hedged spread bets; downstream tippees (directly tipped by Afsarpour) included for Afsarpour but Sabrdaran held jointly/severally only for Afsarpour’s own trades (not downstream tippees); Sabrdaran permanently barred as officer/director; prejudgment interest awarded against Afsarpour (1961 and 6621 rates by category); no civil penalty for Sabrdaran; no additional injunction |
Key Cases Cited
- O'Hagan v. United States, 521 U.S. 642 (misappropriation theory described for insider-trading liability)
- Dirks v. SEC, 463 U.S. 646 (tipper liability and personal-benefit/gift-to-friend doctrine)
- United States v. Salman, 137 S. Ct. 420 (Salman) (Supreme Court reaffirming Dirks and permitting inference of personal benefit from gift to friend)
- Aaron v. SEC, 446 U.S. 680 (SEC must prove breach of duty for tipper liability)
- Morrison v. National Australia Bank, 561 U.S. 247 (transactional test for extraterritorial application of Section 10(b))
- SEC v. Platforms Wireless Int'l Corp., 617 F.3d 1072 (disgorgement standard: reasonable approximation of ill-gotten gains)
- SEC v. Clark, 915 F.2d 439 (tippers can be required to disgorge tippees’ profits to deter evasion)
- JT Wallenbrock & Assocs. v. SEC, 440 F.3d 1109 (joint-and-several disgorgement where defendants closely collaborated in fraud)
- First Pac. Bancorp v. SEC, 142 F.3d 1186 (factors for officer/director bar inquiry)
- Reeves v. Sanderson Plumbing Prods., 530 U.S. 133 (standard on reviewing factual findings and credibility by jury)