Securities & Exchange Comm'n v. Aragon Partners, LP, No. 10-1204 (2d Cir. 2011)
Annotate this CaseDefendants entered a plea of guilty to conspiracy to commit securities fraud, based on trading on material, nonpublic information and tipping others. The SEC instituted a civil enforcement action, alleging that defendants violated section 10(b) of the Exchange Act and Rule 10b-5 and section 17(a) of the Securities Act of 1933 by engaging in insider trading. The district court imposed civil penalties under section 21(d)(3) of the Exchange Act, 15 U.S.C. 78u(d)(3): a penalty of $600,000 on one defendant for five violations and a penalty of $120,000 on another for two tips The Second Circuit vacated in part, holding that civil monetary penalties for insider trading are not available under section 21(d)(3). The section refers to penalties for violations, "other than by committing a violation subject to a penalty pursuant to section 78u-1;" the referenced section states that penalties shall not exceed three times profit gained or loss avoided. The court held that 21(d)(3) is intended to deal with violations other than insider trading. Although the defendants did not make a profit or avoid a loss and were not penalized under 78u-1, they committed insider trading and are "subject to" penalty even if the penalty was not assessed.
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