Securities and Exchange Commission v. Kara et al

Filing 167

ORDER by Judge Edward M. Chen Granting in Part and Denying in Part 152 Plaintiff's Motion for Summary Judgment.(emcsec, COURT STAFF) (Filed on 3/1/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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Case No. 09-cv-01880-EMC

SECURITIES AND EXCHANGE
COMMISSION, et al.,

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ORDER GRANTING IN PART AND
DENYING IN PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT

Plaintiffs,

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v.

Docket No. 152
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For the Northern District of California

United States District Court

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MICHAEL F. KARA, et al.,
Defendants.

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I.

INTRODUCTION

The Securities and Exchange Commission (“SEC”), filed the instant suit against Michael

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Kara (“Defendant”), alleging Defendant was involved in an insider trading scheme whereby

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Defendant used material nonpublic information provided to him by his brother, Maher Kara

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(“Maher”), to purchase securities in Andrx Corporation (“Andrx”) and Biosite, Inc. (“Biosite”).

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The SEC has moved for summary judgment on the claim for securities fraud under Section 10(b)

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and 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3. The SEC seeks the civil

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remedies of disgorgement, prejudgment interest, civil penalties, and an injunction. The only issue

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in dispute is whether Defendant should be ordered to pay disgorgement, prejudgment interest, and

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civil penalties. Having considered the parties‟ briefs, accompanying exhibits and oral arguments,

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the Court hereby makes the following rulings:

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(1) The Court finds Defendant civilly liable of securities fraud and GRANTS the SEC‟s
request for an injunction against Defendant.
(2) The Court GRANTS the SEC‟s request for disgorgement and prejudgment interest.
Defendant is ordered to pay $424,988 in disgorgement. The SEC is to submit

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supplemental briefing within seven (7) days with the calculation for prejudgment

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interest for the dates discussed below.
(3) The Court DENIES the SEC‟s request for civil penalties.

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II.

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BACKGROUND

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The facts of this case contained in the SEC‟s Amended Complaint (Docket No. 62) are not

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in dispute. The SEC complaint parallels the prosecution‟s case in U.S. v. Mounir Fayez Kara (aka

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Michael Kara), Case No. 3:09-cr-00417-EMC, wherein Defendant was convicted of securities

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fraud under Section 10(b) of the Securities Exchange Act of 1934 and conspiracy to commit

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conspiracy fraud.
According to the SEC complaint, from 1998 to 2007, Citigroup employed Maher as an

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investment banker. See Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 9; Docket No. 62

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For the Northern District of California

United States District Court

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(SEC‟s Amended Complaint) (“FAC”) ¶ 20. In 2002, Maher began specializing in healthcare

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companies and in 2005, was promoted to Director in the Healthcare Group of Citigroup‟s

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Investment Banking Division. See Docket No. 157 (Request for Judicial Notice) (RJN)1, Exh. 2;

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FAC ¶ 20. Maher learned about upcoming confidential transactions through his position at

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Citigroup, including through discussions with colleagues, exchanges between investment bankers

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in the Healthcare Group, and advising Citigroup clients. See Case No. 3:09-cr-00417-EMC,

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Docket No. 234 ¶ 9; FAC ¶ 21. Maher and Citigroup senior bankers within the Healthcare Group

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The SEC requests judicial notice of : (1) Defendant‟s Indictment in his criminal case; (2)
Defendant‟s Plea Agreement in his criminal case; (3) Defendant‟s Transcript of the Plea Hearing
in his criminal case; (4) the Amended Judgment in the criminal case; (5) the Final Order of
Forfeiture Order; (6) the Deferred Prosecution Agreement in Emile Jilwan‟s criminal case; (7) the
Indictment of Bassam Salman; (8) the Amended Judgment in the criminal case against Bassam
Salman; (9) the Transcript of the Trial Proceedings against Bassam Salman; (10) the phone
records of Bassam Salman; (11) the Indictment of Karim Bayyouk; and (12) the Transcript of the
Trial Proceedings against Karim Bayyouk. RJN at 2-3.
Under the Federal Rule of Evidence 201, “[t]he court may judicially notice a fact that is
not subject to reasonable dispute because it: (1) is generally known within the court‟s territorial
jurisdiction; or (2) can be accurately and readily determined from sources who accuracy cannot
reasonably be questioned. Fed. R. Evid. 201.” The Court may take judicial notice of undisputed
matters of public record, Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001), including
documents on file in federal or state courts. See Bennett v. Medtronic, Inc., 285 F.3d 801, 803 n.2
(9th Cir. 2002). Here, Kara does not dispute the accuracy of the documents, which are all readily
verifiable documents filed in this district. Judicial notice is therefore proper.
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discussed pending projects and other work tasks at biweekly meetings. FAC ¶ 23. Each person in

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the group was subject to confidentiality obligations preventing the misuse or discussing the

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information with non-employees. RJN, Exh. 1 ¶ 6; FAC ¶ 23. As an employee of Citigroup,

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Maher knew the restrictions on confidential information and Citigroup‟s policy prohibiting him

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from trading in securities issued by any healthcare company. RJN, Exh. 1 ¶ 6; FAC ¶ 24. Based

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on Citigroup‟s employee policies, Maher had a duty to maintain the confidentiality of any

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information he obtained during his employment. FAC ¶ 25.

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A.

Trading in Andrx Corporation Securities

Banking Division seeking advice to acquire Andrx. FAC ¶ 26. The planned acquisition and

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discussions with Citigroup were confidential. Id. Maher was aware of the acquisition from

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For the Northern District of California

In December 2005, an international drug company contacted Citigroup‟s Investment

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United States District Court

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communications with other Citigroup employees, discussions at meetings, and the working

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relationship he had with investment bankers. FAC ¶ 27.
On or before February 24, 2006, Maher breached his duty of confidentiality by tipping

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Defendant with material nonpublic information about the planned Andrx acquisition. FAC ¶ 30.

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On February 24, 2006, Defendant spent $92,735 purchasing short-term call options in Andrx.

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FAC ¶ 31. From February 24 to March 10, 2006, Defendant spent $150,675 purchasing Andrx

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call options and $14,722 purchasing 735 shares of Andrx stock resulting in profits of $396,315.

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Id.

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Defendant tipped family and friends about the plan to acquire Andrx. FAC ¶ 32. On

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February 24, 2006, Defendant tipped his friend, Emile Jilwan, about the acquisition of Andrx.

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FAC ¶ 33. From February 24 to March 10, 2006, Jilwan spent $157,629 to purchase short-term

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Andrx call options resulting in profits of $386,010. Id. On February 24, 2006, Defendant tipped

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Bassam Salman about the Andrx acquisition who in turn tipped his business partner, Karim

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Bayyouk. FAC ¶ 34. From February 24 to March 10, 2006, Bayyouk spent $322,292 purchasing

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Andrx call options resulting in profits of $363,418. Id. On or before March 6, 2006, Defendant

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tipped his friend, Joseph Azar, with information regarding the Andrx acquisition. FAC ¶ 35. Azar

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spent over $123,000 to purchase 2,500 shares of Andrx stock resulting in profits of $18,473. Id.
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On or before March 9, 2006, Defendant tipped his uncle, Zahi Haddad, with information regarding

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the Andrx acquisition. FAC ¶ 36. Haddad spent $11,349 to purchase Andrx short-term call

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options resulting in a profit of $10,205. Id.
The diagram below summarizes the insider trading scheme in Andrx stocks and options.

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Emile Jilwan
Pleasanton, CA
 Profits: $386,000
 Tipped by Michael
Kara 2/24/06, first trade
2/24/06

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Bassam Salman
Orland Park, IL
 Tipped by Michael
Kara 2/24/06

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For the Northern District of California

United States District Court

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Maher Kara
New York, NY
 Investment banker in
Citigroup‟s
healthcare group
 He and colleagues in
his group worked on
Andrx deal

Michael Kara
Walnut Creek, CA
 Profits: $396,000
 Tipped by Maher Kara
on or before 2/23/06,
first trade 2/4/06

Karim Bayyouk
Livonia, MI
 Profits: $363,000
 Tipped by Bassam
Salman 2/24/06, first
trade 2/24/06

Joseph Azar
Pleasanton, CA
 Profits: $18,000
 First trade 3/6/06

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Zahi Haddad
Stockton, CA
 Profits: $10,000
 First trade 3/10/06

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B.

Trading in Biosite, Inc. Securities

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On March 5, 2007, bankers from Citigroup‟s Investment Banking Healthcare Group

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learned that its client, Beckman Coulter Inc. (“Beckman”), was seeking financing to acquire

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Biosite. See Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 23; FAC ¶ 40. Like the Andrx

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acquisition, the negotiations for the acquisition of Beckman and Citigroup‟s involvement in the

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financing were confidential. FAC ¶ 41. Maher learned of the acquisition negotiations through

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Healthcare Group meetings, meetings of investment bankers in the Healthcare Group, and through

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his working relationship with employees in the Citigroup Investment Banking Healthcare Group.

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FAC ¶ 43.
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Maher then breached his duty of confidentiality by tipping Defendant with material

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nonpublic information about the planned Biosite acquisition. See Case No. 3:09-cr-00417-EMC,

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Docket No. 234 ¶ 23; FAC ¶ 45. On March 22 and 23, 2007, Defendant spent $154,451 to

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purchase 1,615 shares of stock and 435 call option contracts resulting in profits of $1,239,711.

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FAC ¶ 46; see Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 28.

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Defendant tipped friends and family about the planned acquisition of Biosite. FAC ¶ 47.

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On March 22, 2007, Defendant called his friend, Joseph Azar, and told him about the plan to

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acquire Biosite. See Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 26; FAC ¶ 48. Azar spent

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approximately $200,000 to purchase 3,700 shares of Biosite stock resulting in potential profits of

told Karim Bayyouk. See Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 25; FAC ¶ 49.

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For the Northern District of California

$108,525. FAC ¶ 48. Defendant tipped Bassam Salman with the Biosite information who then

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United States District Court

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Bayyouk spent $100,906 to purchase short-term call options resulting in a profit of $954,905. See

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Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 25; FAC ¶ 49. Bayyouk tipped his brother who

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spent $5,018 to purchase short-term Biosite stock options resulting in profits of $72,550. FAC ¶

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50. Defendant called his friend, Nasser Mardini, and provided him with information about the

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planned acquisition of Biosite. See Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 25; FAC ¶

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51. On March 23, 2007, Mardini directed a friend to order call options for him, encouraged his

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brother to purchase Biosite call options, and traded in another friend‟s account. FAC ¶ 51. The

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profits from the trades totaled $291,723. Id. On March 22, 2007, Defendant and Emile Jilwan

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spoke by telephone and Jilwan ordered Biosite call options in a joint account for Jilwan and his

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wife. See Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶¶ 24, 28; FAC ¶ 52. Defendant

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purchased Biosite stock and call options for $303,603 in a brokerage account held in Jilwan‟s

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name which Defendant had access to. FAC ¶ 52. The trades resulted in profits of $2.3 million.

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See Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 28; FAC ¶ 52. On March 23, 2007,

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Defendant called his uncle, Zahi Haddad, who wired $2,100 into his brokerage account and

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purchased Biosite call options resulting in profits of $81,725. FAC ¶ 53. Defendant placed two

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trades in an account held in the name of a long-time friend resulting in profits of $118,235. FAC ¶

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54. Based on the information Defendant received from Maher, Defendant made profits of more
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than $1.2 million while his friends and family who he tipped made profits of more than $3.9

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million. FAC ¶ 55.
The diagram below summarizes the insider trading scheme in Biosite stocks and options.

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Emile Jilwan
Pleasanton, CA
 Profits: $2.3 Million
 Telephone call with
Michael Kara 3/22/07,
first trade minutes later

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Bassam Salman
Orland Park, IL
 Telephone call with
Michael Kara 3/22/07,
minutes later Salman
calls Karim Bayyouk

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For the Northern District of California

United States District Court

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Maher Kara
New York, NY
 Investment banker
in Citigroup‟s
healthcare group
 Colleagues in his
group worked on
Biosite deal

Karim Bayyouk
Livonia, MI
 Profits: $955,000
 Telephone call with
Bassam Salman 3/22/07,
first trade 3/23/07

Zahi Haddad
Stockton, CA
 Profits: $82,000
 Telephone call with
Michael Kara on 3/23/07,
first trade on 3/23/07

Michael Kara
Walnut Creek, CA
 Profits: $1.2 Million
 Telephone call with
Maher Kara 3/22/07,
first trade minutes
later

Nasser Mardini
Stockton, CA
 Telephone call with
Michael Kara 3/22/07
 Trades and encourages
others to trade 3/23/07

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Joseph Azar
Pleasanton, CA
 Profits: $108,000
 Telephone call with
Michael 3/22/07, first
trade 3/23/07

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III.

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A.

DISCUSSION

Defendant is Civilly Liable and the SEC‟s Request for an Injunction is Granted
The parties do not dispute that Defendant is liable for securities fraud. See Opp. at 2.

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Defendant admits that he traded on inside information and does not dispute the material facts. Id.

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Further, Defendant agrees with the SEC that the Court should enjoin him from future violations of

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securities laws. Id. Therefore, the Court finds that Defendant is liable for securities fraud and will
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issue an injunction enjoining Defendant from future securities laws violations.

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B.

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Defendant is Ordered to Pay Disgorgement in the Amount of $424,988
“Disgorgement is an equitable remedy, imposed to force a defendant to give up the amount

“Disgorgement serves to remedy securities law violations by depriving violators of the fruits of

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their illegal conduct.” Id.; see also SEC v. Cavanagh, 445 F.3d 105, 117 (2d Cir. 2006)

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(explaining that disgorgement has been used to prevent wrongdoers from unjustly enriching

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themselves through violations). Disgorgement cannot exceed the amount by which a defendant

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was unjustly enriched “[b]ecause disgorgement does not serve a punitive function.” Contorinis,

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743 F.3d at 301; see also SEC v. World Gambling Corp., 555 F. Supp. 930, 935 (S.D.N.Y. 1983)

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(disgorgement for “profit obtained” including payment of income taxes was not punitive).

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For the Northern District of California

by which he was unjustly enriched.” SEC v. Contorinis, 743 F.3d 296, 301 (2d Cir. 2014).

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United States District Court

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Disgorgement only needs to be a reasonable approximation of the profits which have been

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causally connected to the violation. SEC v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir.

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1989). In an insider trading case, courts typically require that the violator return all the profits

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made on the trades. Id. Thus “[a] tipper can be required to disgorge his tippees‟ profits, whether

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or not the tippees themselves have been found liable.” SEC v. Clark, 915 F.2d 439, 454 (9th Cir.

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1990); see also Contorinis, 743 F.3d at 303 (holding that tippers may be held liable to disgorge the

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gains of their tippees).

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Once the district court has found a federal securities law violation, the court has broad

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discretion in issuing a remedy, including whether or not the defendant should disgorge their

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profits. SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474 (2d Cir. 1996). Further, the court‟s

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discretion extends to calculating the amount of disgorgement. Id.

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Here, Defendant has admitted that he acted as both a tippee and a tipper in the insider

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trading scheme. See Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶ 8; FAC ¶¶ 30, 32-37, 45,

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47-55. Maher breached his duty of confidentiality to Citigroup when he disclosed the information

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about the Andrx acquisition. Defendant traded in Andrx stock and call options based on the

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information received from Maher and made illegal profits of $395,637.37. See Mot. at 20.

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Defendant also tipped his family and friends with the information about the Andrx acquisition and
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thus became a tipper. The SEC focuses specifically on the trades of Emile Jilwan because

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Defendant admitted he tipped him, the two shared control of a brokerage account in Jilwan‟s

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name, and both made trades based on the information provided by Maher. See Mot. at 19-20.

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Based on the information Jilwan received from Defendant, he purchased short-term Andrx call

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options resulting in profits of $378,033.61. See Mot. at 20.

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Further, Defendant traded on Maher‟s information about the planned Biosite acquisition,

using a joint account for the benefit of Jilwan and his wife but in which Defendant had access.

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The resulting profits based on these trades totaled $2,307,698.30. In total, Defendant and Jilwan

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realized $4,322,022.68 in illegal profits from the trades in Andrx and Biosite securities. Since the

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purpose of disgorgement is to prevent the securities law violator from benefiting from his illegal

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For the Northern District of California

resulting in profits of $1,240,653.40. Defendant tipped Jilwan, who purchased Biosite call options

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United States District Court

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trades, the SEC seeks disgorgement of the entire amount of illegal profits he made from the trades

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in Andrx and Biosite, as offset by the following amounts:

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$1,444,467

Sum Jilwan paid in forfeiture from the

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accounts shared with Defendant
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$1,317,087

Full disgorgement for which Jilwan agreed

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he was liable in this action
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$1,135,480

Total amount Defendant paid in forfeiture

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($396,941) and restitution ($738,539)
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$3,897,034

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Total Credits

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After applying the credits, the SEC seeks disgorgement in the amount of $424,988 ($4,322,022.68

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- 3,897,034).

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Defendant argues disgorgement of $424,988 fails to take into account the payment of taxes

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to the IRS. See Docket No. 159 (Opp.) at 2, 5-6. Defendant claims he has already paid the IRS

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and Franchise Tax Board $573,124.80 after declaring the capital gains on the profits from the

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illegal trades and that if the Court ordered disgorgement, it would constitute double counting. Id.

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at 5-6. However, the payment of taxes to the IRS is a collateral matter because Defendant
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received the ill-gotten gains first and then had to pay taxes on it. Although the taxes are related to

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ill-gotten gains, taxes are collateral to the illegal transactions, not an integral part of it. The

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collateral nature of tax liability is illustrated by the fact that the precise tax due could be affected

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by other financial factors (e.g., other reported income, deductions, tax credits, etc.) unrelated to the

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ill-gotten gains. Moreover, Defendant may be entitled to obtain future tax relief from the IRS as a

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result of the disgorgement ordered herein. See SEC v. Koenig, 532 F. Supp. 2d 987, 994 (N.D. Ill.

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2007) (acknowledging the possibility the defendant may obtain future tax deductions but leaving

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the decision for the defendant to work out with the IRS). This underscores the collateral nature of

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the tax payments.

securities law violator [may not] avoid or diminish his responsibility to return his ill-gotten gains

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For the Northern District of California

It is therefore not surprising that as a general matter, the Ninth Circuit has held “„A

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United States District Court

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by establishing that he is no longer in possession of such funds due to . . . forms of discretionary

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spending.‟” SEC v. JT Wallenbrock & Assocs., 440 F.3d 1109, 1135-36 (9th Cir. 2006) (quoting

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SEC v. Thomas James Assocs., Inc., 738 F. Supp. 88, 95 (W.D.N.Y. 1990)). Other courts have

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also found that tax payments should not be deducted from disgorgement calculations. For

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example, in SEC v. Svoboda, the court held that “deduction of capital gains taxes from illicit

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trading gains was not required when determining the amount the defendant would be required to

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disgorge in an SEC enforcement action.” 409 F. Supp. 2d 331, 345 (S.D.N.Y. 2006); see also

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Koenig, 532 F. Supp. 2d at 994 (court declined to adjust the disgorgement amount based on

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defendant‟s payment of taxes on ill-gotten gains). In Svoboda, the defendant was convicted of

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violating Section 10(b) and 14(e) of the Securities Exchange Act of 1934. Svoboda, 409 F. Supp.

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2d at 336. The defendant challenged the disgorgement amount, arguing that the court should

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deduct the amount of capital gains taxes paid from the illicit trading gains. Id. at 345. However,

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the defendant cited no legal authority in support, and the court held that the disgorgement amount

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should not be deducted based on the taxes paid. Id.; see also SEC v. Razmilovic, 822 F. Supp. 2d

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234, 277 (E.D.N.Y. 2011) (“there is no legal authority to support a deduction for taxes paid upon

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ill-gotten gains”).

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Defendant has not cited any cases supporting the proposition that the disgorgement figure
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include deductions for previous taxes paid on illegal profits. Instead, Defendant relies on legal

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authority arguing that the Court must consider whether disgorgement is appropriate under the

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particular facts. See Opp. at 6. The Court finds that disgorgement in the amount of $424,988 is

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reasonable because Defendant engaged in an insider trading scheme in which he not only traded

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on the material nonpublic information provided by Maher, but also tipped his friends and family

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with the information about the planned acquisitions of Andrx and Biosite.
While Defendant relies on Hateley v. SEC, 8 F.3d 653, 655-56 (9th Cir. 1993) for the

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disgorgement cannot be unreasonable and excessive to the defendant, Hateley is distinguishable.

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There, the court held that the amount of disgorgement was unreasonable because it amounted to

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more than ten times the amount of the defendant‟s unjust enrichment. Id. at 656. More

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For the Northern District of California

argument that courts must examine the amount actually retained by defendants and that

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United States District Court

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importantly, the disgorgement ordered took into account the net proceeds received by defendant –

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not of finder‟s fees paid to the third party who was responsible for the illegal trades off the top.

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Those fees were indispensable, not collateral, to the illegal transaction. As discussed above, that is

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not true with taxes here. Taxes did not affect the amount received by Defendant as a result of the

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illegal conduct. Taxes were paid after the fact and were not an expense necessarily incurred in

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acquiring the ill-gotten gain.
In sum, the disgorgement amount of $424,988 is reasonable because Defendant‟s insider

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trading scheme lasted two years and resulted in profits of $4,322,022 and the SEC has credited

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Defendant for payments made by both himself and Jilwan. No credit is due for taxes paid.

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C.

Prejudgment Interest is not Ordered

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Defendant also contests the amount sought by the SEC for prejudgment interest. See Opp.

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at 2. “Prejudgment interest on a disgorgement amount is intended to deprive the wrongdoer of the

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benefit of holding the illicit gains over time by reasonably approximating the cost of borrowing

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such gain from the government.” Contorinis, 743 F.3d at 308. “[Prejudgment] interest is given in

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response to considerations of fairness.” Blau v. Lehman, 368 U.S. 403, 414 (1962). While “the

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amount on which a violator must pay prejudgment interest usually tracks the amount that the party

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is ordered to disgorge,” Contorinis, 743 F.3d at 308, in this case, once the taxes were paid on the
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ill-gotten gains, Defendant no longer had use of the money in question. In view of this fact and

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the substantial forfeiture, restitution and fine ordered by this Court, the Court in the exercise of its

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discretion concludes that prejudgment interest should not be paid past the date taxes were paid by

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Defendant.
The Court orders Defendant to pay prejudgment interest for the period he had possession

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of the ill-gotten gain up to the date taxes were paid (on October 14, 2008). The SEC shall

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calculate such amount.

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D.

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The SEC‟s Motion for Summary Judgment on the Claim for Civil Penalties is Denied
The Court may impose civil penalties for insider trader violations under 15 U.S.C. § 78u-1

(2012). The statute states:
The amount of the penalty which may be imposed on the person
who committed such violation shall be determined by the court in
light of the facts and circumstances, but shall not exceed three times
the profit gain or loss avoided as a result of such unlawful purchase,
sale, or communication.

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For the Northern District of California

United States District Court

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15 U.S.C. § 78u-1(a)(2). “Civil penalties are designed to punish the individual violator and deter

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future violations of the securities law.” SEC v. Opulentica, LLC, 479 F. Supp. 2d 319, 331

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(S.D.N.Y. 2007).

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In determining if civil penalties should be imposed, the courts look
at factors including: 1) the egregiousness of the defendant‟s conduct;
2) the degree of the defendant‟s scienter; 3) whether the defendant‟s
conduct created substantial losses or the risk of substantial losses to
other persons; 4) whether the defendant‟s conduct was isolated or
recurrent; and 5) whether the penalty should be reduced due to the
defendant‟s demonstrated current and future financial condition.

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Id. at 329.
The Court denies the SEC‟s request for civil penalties. To be sure, Defendant‟s conduct

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was egregious because Defendant engaged in the insider trading scheme for about three years

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which netted him profits of more than $4 million. See Svoboda, 409 F. Supp. 2d at 347 (imposing

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civil penalties because defendant violated securities laws, made a profit of $219,100, possessed a

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high degree of scienter, and the scheme lasted for four years). Moreover, Defendant did not fully
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and quickly cooperate with the investigation; instead he first misled the SEC about the source of

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his Biosite information stating that he learned about it from the Yahoo Financial website. See

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Case No. 3:09-cr-00417-EMC, Docket No. 234 ¶¶ 30-31, 34. Defendant evinced a high degree of

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scienter because he not only traded on the confidential information provided to him by his brother

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but tipped five others. He caused a substantial loss to the economic markets. See Opulentica,

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LLC, 479 F. Supp. 2d at 331 (court ordered the defendant to pay a civil penalty because he

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deprived investors of $443,962.10 and diverted $185,000 for his personal use); SEC v. Freeman,

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290 F. Supp. 2d 401, 405 (S.D.N.Y. 2003) (holding the SEC was entitled to a civil penalty

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because defendant made eight trades on insider information over the course of two years).

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Weighing against factors which support a civil penalty is Defendant‟s current financial
situation, as he has disgorged most, if not all, of the money that he made from the illegal trades.

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For the Northern District of California

United States District Court

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See Docket No. 161, Defendant‟s Exh. A (Defendant‟s 2007 Income Tax Return). After taxes,

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Defendant, if anything, is in the red. Further, Defendant has already been subjected to a criminal

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conviction and forfeiture in the amount of $396,941, agreed to an injunction against future

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securities laws violations, and paid criminal restitution for $738,539.42. See Mot. at 20; Opp. at 5.

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The Court finds that payment of disgorgement and prejudgment interest combined with these

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criminal penalties and his resulting financial situation will sufficiently deter Defendant from

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committing future securities laws violations, therefore making the payment of civil penalties

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excessive and unnecessary. Moreover, Defendant is enjoined from future securities laws

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violations. See also Docket No. 161, Defendant‟s Exh. A (Defendant‟s 2007 Income Tax Return).

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Thus, civil penalties are not warranted.

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IV.

CONCLUSION

The Court GRANTS the SEC‟s motion for summary judgment on Defendant‟s civil

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liability for securities fraud. The Court will issue a permanent injunction enjoining Defendant

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from future violations of securities laws, which both parties agree is appropriate. The Court

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further finds that Defendant must pay disgorgement in the amount of $424,988 and prejudgment

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interest for the period discussed above. The SEC shall file a supplemental brief within seven (7)

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days with calculation of prejudgment interest. Defendant shall have seven (7) days thereafter to
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contest such calculation. The Court DENIES the SEC‟s request for civil penalties.
This order disposes of Docket No. 152.

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IT IS SO ORDERED.

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Dated: March 1, 2016
______________________________________
EDWARD M. CHEN
United States District Judge

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For the Northern District of California

United States District Court

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