Securities and Exchange Commission v. Morano

Filing 23

OPINION & ORDER Plaintiff's Motion for Monetary Penalty Against Defendant, ECF No. 20, is GRANTED. Defendant is ordered to pay a monetary penalty of $75,000. Plaintiff is to submit a proposed final judgment in accordance with this Opinion and Order. Signed on 4/1/2019 by Judge Marco A. Hernandez. (Mailed to Pro Se party on 4/1/2019.) (jp)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
U.S. SECURITIES AND EXCHANGE
COMMISSION,

No. 3:18-cv-00386-HZ
OPINION AND ORDER

Plaintiff,
v.
ROBERT M. MORANO,
Defendant.
______________________________
HERNANDEZ, J.
In this enforcement action brought by Plaintiff U.S. Securities and Exchange
Commission, Defendant Robert M. Morano has stipulated to entry of judgment against him for
illegal insider trading. Judgment, ECF No. 8. The Judgment permanently enjoins Defendant
from violating § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b5, 17 C.F.R. § 240.10b-5. Defendant has agreed to disgorge $38,242 in illicit trading profits,
plus prejudgment interest of $2,317.
Plaintiff now moves for the imposition of a civil monetary penalty of $114,726, which is
three times Defendant’s illicit profits, the maximum penalty allowed under the Insider Trading

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OPINION AND ORDER

Sanctions Act, 15 U.S.C. § 78u-1. Defendant, who is representing himself, opposes a civil
penalty.
The parties agree that this court will decide whether to impose a civil penalty and, if so,
the amount of the penalty. Defendant agrees that (1) he is “precluded from arguing that he did
not violate the federal securities law as alleged in the Complaint”; (2) he “may not challenge the
validity” of the Consent or the Judgment; (3) for purposes of Plaintiff’s motion for civil
penalties, “the allegations of the Complaint shall be accepted as and deemed true” by this court;
and (4) this court “may determine the issues raised in the motion on the basis of affidavits,
declarations, excerpts of sworn deposition or investigative testimony, and documentary
evidence, without regard to the standards for summary judgment” in Federal Rule of Civil
Procedure 56(c). Judgment 4.
For the following reasons, I grant Plaintiff’s Motion for Monetary Penalty and order that
Defendant pay a penalty of $75,000.
BACKGROUND
In 2010, Defendant began working for UTi Worldwide, Inc. (UTi) as a senior
communications specialist, working remotely from his residence in Portland, Oregon. Compl. ¶
9, ECF No. 1. UTi was “a global supply chain services and solutions company . . . incorporated
in the British Virgin Islands and based in Long Beach, California.” Compl. ¶ 10. UTi’s
common stock was registered with Plaintiff and traded on the NASDAQ.
Defendant testified at his deposition that his “role [at UTi] was to basically develop or
assist in the development of marketing and corporate communications messages and content for
internal, meaning employee, or external, meaning customers or the general public” through

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OPINION AND ORDER

emails, newsletters, brochures, or online postings. Morano Dep. 20, ECF No. 20-2. Under his
employment agreement and UTi policy, Defendant “had a duty not to trade on or otherwise
misuse confidential information.” Compl. ¶ 12. UTi prohibited its employees from “using
material nonpublic information for personal gain in connection with trading in UTi securities.”
Compl. ¶ 12. Defendant “received training on [UTi’s] insider trading policy and affirmed that he
read and understood the policy.” Compl. ¶ 12.
For several weeks in fall 2015, UTi negotiated privately with DSV Air & Sea Holdings
A/S (DSV), a Danish company seeking to acquire UTi. Compl. ¶¶ 10, 11, 13. On October 8,
2015, DSV and UTi agreed that DSV would acquire UTi for $7.10 per share. Compl. ¶ 13.
“The acquisition price represented a premium of 50% over the market price of UTi stock, and
valued the acquisition at approximately $1.35 billion.” Compl. ¶ 13. DSV and UTi planned to
announce the agreement publically the next morning, October 9, 2015.
On the afternoon of October 8, 2015, a UTi executive notified Defendant by phone about
DSV’s pending acquisition of UTi. Compl. ¶ 14. Defendant was to assist in preparing the
announcement of the acquisition. The UTi executive told Defendant “that the information was
confidential and instructed him to strictly maintain the confidentiality of the information about
the acquisition until after the public announcement the very next day.” Compl. ¶ 15.
Immediately after the phone call, Defendant “logged on to three separate brokerage
accounts that he controlled and purchased in the open market a total of 17,515 shares of UTi.”
Compl. ¶ 16. Defendant paid an average of $4.78 per share.
The next day, October 9, 2015, DSV and UTi announced DSV’s purchase of UTi at
$7.10 per share. After the announcement, UTi’s share price increased more than 50% on heavy

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OPINION AND ORDER

trading. UTi stock closed that day at $7.13 per share. Compl. ¶ 17. The next day, Defendant
sold his UTi shares, realizing $38,242 in illicit profits from the sale.
In May 2017, Plaintiff’s investigators telephoned Defendant to ask about his purchase of
UTi stock on October 8, 2015. During the phone call, Defendant told Plaintiff’s investigator that
he was only a “peon” with UTi, and did not have access to insider information about DSV’s
acquisition. Morano Dep. 16. Defendant later testified at his deposition that during the initial
conversation with Plaintiff, he “downplayed” his knowledge of the acquisition, in part because
he “recognized, at least on a subconscious level, that I had done something that I shouldn’t have
done and was unwilling to acknowledge or admit that to myself, much less to someone whose
identity I wasn’t sure about,” i.e., Plaintiff’s investigator. Morano Dep. 19. Defendant testified
that he “sensed that it was wrong, that I had an unfair advantage, but I really thought an insider
was a registered officer, or fiduciary, or someone with a 5 percent or more . . . I thought I knew
that it was wrong sort of morally or ethically, but okay legally because, well, I’m not an insider,
so this isn’t insider trading.” Morano Dep. 34.
Defendant also testified that he had traded UTi’s stock about eight or nine times before
his October 2015 trades. Defendant testified that in early September 2015, he received a copy of
a press release on UTi’s earnings before the release was made public, and he
took it as good news and bought the stock. I really think that I waited until the
press release crossed the wire, but that may not -- I’ve seen standards of two days
-- two business days for the information to become nonpublic, even though it’s
been announced . . . giving the public two days to absorb it and respond to it,
which I certainly did not do.
Morano Dep. 41. Plaintiff apparently lost money on his September 2015 trading of UTi’s stock.
Fitzsimmons Decl., Ex. 2, ECF No. 20-3.

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OPINION AND ORDER

LEGAL STANDARDS
Congress authorizes Plaintiff to seek civil penalties in this court against persons who
commit insider trading. 15 U.S.C. § 78u-1(a)(1). “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 gained or loss avoided as
a result of such unlawful purchase, sale, or communication.” 15 U.S.C. § 78u-1(a)(2).
The statute defines “profit gained”or “loss avoided” as “the difference between the
purchase or sale price of the security and the value of that security as measured by the trading
price of the security a reasonable period after public dissemination of the nonpublic
information.” 15 U.S.C. § 78u–1(e). “In other words, the statutory penalty amount is tethered to
the profits—the statute ‘make[s] the amount of financial liability to which a violator of the
insider trading laws may be exposed directly proportional to the amount of the profit gained or
the loss avoided’ from the purchase or sale of a security.” SEC v. Sabrdaran, 252 F. Supp. 3d
866, 904 (N.D. Cal. 2017) (quoting SEC v. Rosenthal, 650 F.3d 156, 162 (2d Cir. 2011) (citing
15 U.S.C. § 78u–1(a)(2)). Congress authorized civil penalties “to ‘enhance deterrence against
insider trading, and where deterrence fails, to augment the current methods of detection and
punishment of this behavior.’” SEC v. Happ, 392 F.3d 12, 32 (1st Cir. 2004) (quoting H.R. Rep.
No. 100-910, at 7 (1988), reprinted in 1988 U.S.C.C.A.N. 6043, 6044)).
The parties did not cite, and I did not find, Ninth Circuit decisions on determining civil
penalties for insider trading. See Sabrdaran, 252 F. Supp. 3d at 905. District courts in this and
other circuits have used the following six-factor test to aid in determining civil penalties:
“(1) the egregiousness of the violations; (2) the isolated or repeated nature of the
violations; (3) the defendant’s financial worth; (4) whether the defendant
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OPINION AND ORDER

concealed his trading; (5) what other penalties arise as the result of the
defendant’s conduct; and (6) whether the defendant is employed in the securities
industry.”
SEC v. Gowrish, No. C 09-5883 SI, 2011 WL 2790482, at *9 (N.D. Cal. July 14, 2011) (quoting
Happ, 392 F.3d at 32), aff’d, 510 F. App’x 588 (9th Cir. 2013). “Ultimately, after considering
these factors, the court has discretion to impose a monetary penalty that goes beyond
disgorgement of illegal profits to serve the goal of deterrence.” Sabrdaran, 252 F. Supp. 3d at
905 (footnote omitted) (citing, inter alia, SEC v. Sargent, 329 F.3d 34, 42 n.2 (1st Cir. 2003);
SEC v. Henke, 275 F. Supp. 2d 1075, 1083 (N.D. Cal. 2003)).
DISCUSSION
I use the six-factor test described above as a framework for determining the civil penalty.
Defendant acknowledges that under his agreement with Plaintiff, he is “constrained from
disputing” “Plaintiff’s presentation of the facts,” but contends that he may “clarif[y] and
supplement[]” the facts. Def.’s Opp’n 1, ECF No. 21. I consider Defendant’s factual assertions
to the extent they are relevant and consistent with his prior stipulation.
I. Egregiousness of Violations
Plaintiff contends that Defendant’s conduct was egregious in light of his role with UTi,
“the trust placed in him by the company executive [who told him about the acquisition], and his
knowledge that he had a duty and obligation to not trade on the information . . . . [Defendant]
placed his financial interest above his duty to the company and innocent investors.” Pl.’s Reply
4. Furthermore, when Defendant first talked to Plaintiff’s investigators, he lied about his
advance knowledge of DSV’s acquisition, showing his awareness that his conduct was illicit.
In response, Defendant asserts that he is a “gaming/gambling addict,” suffering from “an

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OPINION AND ORDER

irrational compulsion” to trade stocks online. Def.’s Opp’n 5, 7.1 Defendant has not provided
evidence to support his claim to be a compulsive trader, other than his own assertions, and
Plaintiff states that Defendant refused to answer interrogatories about his alleged addiction.
The parties dispute whether Plaintiff’s exhibit showing Defendant’s stock trades between
January 2016 and March 2018 is evidence of Defendant’s alleged trading addiction.
Fitzsimmons Decl., Ex. 4. Plaintiff argues that this exhibit shows Defendant made less than one
trade per day of fewer than five securities per month. Defendant responds that although the
exhibit states that it covers his stock trades for a total of 65 months, it covers trades for 27
months, from January 2016 through March 2018. Because the exhibit lists Defendant’s trades
per month separately for each of his three accounts, Plaintiff’s calculations do understate the
number of trades Defendant made per month. For example, for January 2016, the exhibit shows
Defendant made almost two trades per day (12 trades of 4 securities in account no. 3579; 12
trades of 7 securities in account no. 5332; and 35 trades of 11 securities in account no. 2341).
However, although Plaintiff may understate the frequency of Defendant’s trades per month, this
does not affect my analysis of the egregiousness of Defendant’s conduct. Defendant purchased
UTi’s stock on October 8, 2015 specifically because he had insider knowledge of DSV’s
acquisition of UTi. Similarly, Defendant purchased UTi’s stock in September 2015 specifically
because he had insider knowledge that UTi was issuing an earnings report. I agree with Plaintiff
that Defendant “made the trades because he was greedy--despite admittedly knowing that his
conduct was unfair, improper, and unethical.” Pl.’s Reply 6.
Defendant argues that although he received training from UTi on the prohibition against

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Defendant states that he has not traded stocks since about April 2018. Def.’s Opp’n 7.

OPINION AND ORDER

insider trading, he does not recall the training. Defendant also asserts that he mistakenly thought
the prohibition against insider trading did not apply to him because he was not a “publicly
designated insider[] who could get in trouble if [he] didn’t follow certain rules concerning [his]
trading and reporting.” Def.’s Opp’n 4. However, Defendant has stipulated that he read and
understood UTi’s insider trading policy, and that a UTi executive told him that information
about DSV’s acquisition was confidential. Compl. ¶¶ 12, 15. Furthermore, Defendant lied to
Plaintiff’s investigators about his knowledge of DSV’s acquisition, showing an awareness that
his conduct was illegal. Plaintiff states that Defendant admitted he knew his stock trading was
illegal only “after being presented with the overwhelming evidence of his illegal conduct.” Pl.’s
Mem. 4. I find that the egregiousness factor weighs in favor of imposing a civil penalty.
II. Isolated or Repeated Nature of Violations
Here, Defendant made three illicit trades of UTi’s stock on October 8, 2015. Defendant
also traded UTi’s stock on September 3, 2015 in an unsuccessful attempt to exploit his insider
knowledge of UTi’s earning statement. This factor weighs in favor of imposing a civil penalty.
See SEC v. Megalli, Civ. No. 1:13-cv-3783-AT, 2015 WL 13021472, at *4 (N.D. Ga. Dec. 15,
2015) (finding the defendant’s conduct was not isolated when he “violated securities laws on two
occasions over roughly ten months”).
III. Defendant’s Financial Worth
Plaintiff has submitted a checking account statement for Defendant for June 28 to July
27, 2018. Fitzsimmons Decl., Ex. 3. The statement indicates that Defendant had about $50,000
in his checking account. The statement also shows two direct deposits of $2,623.36 each in July
2018, apparently indicating Defendant was paid a monthly salary of about $5,250. Plaintiff

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states that it has no further information about Defendant’s employment because he “refused to
provide substantive responses to propounded interrogatories.” Pl.’s Mem. 9 n.1.
Defendant responds that his financial worth “is less than $50,000 and is shared jointly
with his wife, whose income . . . is negligible.” Def.’s Opp’n 8. Defendant states that his
“currently employment is likely to be terminated at any time, both as a result of this matter and
for reasons unrelated to it, and his prospects for any career in a salaried professional position are
likely and perhaps deservedly nil.” Def.’s Opp’n 8. However, Defendant has not submitted
evidence about his current employment. I find that Defendant has an adequate income and
reserves to pay a civil penalty, so this factor weighs in favor of imposing a penalty.
IV. Concealment
Defendant argues he did not try to structure or otherwise conceal his trading in UTi stock.
However, although the “focus of this factor tends to be concealment of the trading itself . . . it
may also include making misstatements to the SEC to hide misconduct.” SEC v. Sabrdaran, 252
F. Supp. 3d 866, 906 (N.D. Cal. 2017); SEC v. Yun, 148 F. Supp. 2d 1287, 1297 (M.D. Fla.
2001) (noting the defendant “engaged in misstatements to SEC investigators in order to
obfuscate any misconduct”). Here, Defendant tried to conceal that he traded UTi’s stock based
on his insider knowledge of DSV’s acquisition. This factor weighs in favor of imposing a civil
penalty.
V. Other Penalties
Defendant has agreed to disgorge his illicit profits, and to pay prejudgment interest on
that amount, but he has not incurred penalties for his conduct, such as criminal fines. This factor
favors imposing a civil penalty.

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OPINION AND ORDER

VI. Employment in Securities Industries
Defendant was employed by a publicly traded company, although not one in the
securities industry. This factor weighs is neutral.
VII. Settlement Negotiations
Defendant contends that after he had agreed to disgorgement and entry of judgment
against him, Plaintiff breached the parties’ agreement by seeking a civil penalty in addition to
disgorgement. Def.’s Opp’n 7. Plaintiff responds that Defendant’s argument about the parties’
settlement negotiations should be stricken because it violates Federal Rule of Evidence 408.
Rule 408 “prohibits the admission of compromise offers and negotiations to prove or disprove
the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a
contradiction, but allows the admission of such evidence ‘for another purpose.’” Memory
Integrity, LLC v. Intel Corp., 308 F.R.D. 656, 660 n.4 (D. Or. 2015). As examples of other
purposes justifying admitting such evidence, Rule 408 mentions “proving a witness’s bias or
prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal
investigation or prosecution.”
I agree with Plaintiff that Defendant’s assertions about the parties’ settlement
negotiations are not admissible under Rule 408. Even if this court were to consider Defendant’s
assertions, Defendant has not presented evidence that Plaintiff agreed not to seek a civil penalty
against Defendant. Plaintiff explains that during insider trading investigations, it may consider
waiving a monetary penalty based on the potential defendant’s financial condition, which the
defendant may show through a sworn statement and other documentation. Pl.’s Reply 5.
Plaintiff states that it did not approve a waiver for Defendant because of his assets and his

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employment. Plaintiff states that after staff explained to Defendant “on countless occasions that
it can only propose the waiver and the settlement terms,” but Plaintiff had the “ultimate authority
to determine whether a payment should be waived for financial reasons, and whether to accept a
settlement offer.” Pl.’s Reply 5-6. Plaintiff further states that Defendant refused to agree to a
monetary penalty despite being offered extended payment terms. I find that Plaintiff did not
breach any agreement with Defendant.
Defendant also asserts that Plaintiff “received more cooperation from the Defendant than
even it wanted,” and that Plaintiff “arguably has pursued him only and exactly to the extent he
has cooperated with its speculative, haphazard and altogether bureaucratically insensible and
avaricious prosecution of this affair.” Def.’s Opp’n 10. Plaintiff responds it obtained
“overwhelming evidence to support its claims through documentary evidence obtained from the
company, discussions with the company’s general counsel, and testimony and documentary
evidence obtained from the company executive” who notified Defendant about the pending
acquisition of UTi, and that Defendant chose to discuss settlement “[o]nly after appreciating the
overwhelming evidence against him.” Pl.’s Reply 7. Given these circumstances, I find that
Defendant’s cooperation during the investigation does not affect the penalty determination.
VIII. Determining the Civil Penalty
Defendant argues that disgorgement is a sufficient sanction for his insider trading. I
disagree. Congress authorized civil penalties for insider trading because “disgorgement alone
merely restores a defendant to his original position without extracting a real penalty for his
illegal behavior.” SEC v. Afriyie, 16-cv-2777 (JSR), 2018 WL 6991097, at *6 (S.D.N.Y. Nov.
26, 2018) (citations and quotation marks omitted); see also Megalli, 2015 WL 13021472, at *3

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(“While disgorgement returns a defendant to his status quo before he violated the law, a civil
penalty punishes the individual defendant and warns others against engaging in future securities
violations.”). I conclude that a civil penalty is warranted here.
Plaintiff moves for the maximum penalty of $114,726, three times Defendant’s illicit
profits. I conclude that a penalty of about two times Defendant’s illicit profits, $75,000, is
appropriate.
Although decisions on civil penalties for insider trading are tied to the particular facts of
each case, I conclude that decisions imposing three-times penalties generally involve more
egregious conduct than occurred here. For example, a court imposed a three-times civil penalty
when the defendant, a vice president of a savings and loan association, “caused [the bank] to
disseminate false and misleading financial statements, engaged in unauthorized securities
transactions, altered bank’s books to hide losses, appropriated $3.5 million from [the bank] and
sold stock at an inflated price before the fraudulent scheme became public.” SEC v. Chapnick,
No. 90-6793-CIV-PAINE, 1994 WL 113040, at *1 (S.D. Fla. Feb. 11, 1994). Another court
imposed the three-times penalty when the defendant conducted an insider trading scheme for
several weeks based on his knowledge of a pending corporate acquisition, making multiple
trades, concealing his conduct, and tipping others. SEC v. Ferrero, No. IP 91 271 C, 1993 WL
625964, at *19 (S.D. Ind. Nov. 15, 1993), aff’d sub nom. SEC v. Maio, 51 F.3d 623 (7th Cir.
1995); see also SEC v. Kinnucan, 9 F. Supp. 3d 370, 377 (S.D.N.Y. 2014) (imposing three-times
penalty when the defendant showed “a high degree of scienter” after pleading guilty in a parallel
criminal prosecution for “recurrent conduct over a period of two years”); SEC v. Patton, No. 02
CV 2564 (SJ), 2008 WL 2388261, at *2 (E.D.N.Y. June 11, 2008) (imposing three-times penalty

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when the defendant realized $59,830 in illicit insider trading profits; court did not apply the sixfactor test), amended on other grounds, 2009 WL 54563 (E.D.N.Y. Jan. 8, 2009).
I conclude that a two-times penalty is appropriate. Defendant’s conduct was egregious,
betraying his employer’s trust for personal gain. Defendant lied about his knowledge and
cooperated only after being shown evidence of his illicit conduct. Defendant has cash reserves
and is employed. Defendant states that his wife’s income is “negligible,” but he does not
mention dependents. Def.’s Opp’n 8; cf. SEC v. Pardue, 367 F. Supp. 2d 773, 778 (E.D. Pa.
2005) (imposing $25,000 penalty despite SEC’s request for $139,697 penalty because the
defendant had a negative net worth and a large family to support). The penalty here serves as
punishment and deterrence. See SEC v. Drucker, 528 F. Supp. 2d 450, 453 (S.D.N.Y. 2007)
(imposing two-times penalty of $394,486 when the defendant betrayed his employer’s trust, tried
to conceal his conduct through structured trades, failed to cooperate with the investigation “until
his back was literally against the wall,” and committed perjury at trial), aff’d, 346 F. App’x 663
(2d Cir. 2009).
CONCLUSION
Plaintiff’s Motion for Monetary Penalty Against Defendant, ECF No. 20, is GRANTED.
Defendant is ordered to pay a monetary penalty of $75,000. Plaintiff is to submit a proposed
final judgment in accordance with this Opinion and Order.
IT IS SO ORDERED.
DATED this ____ day of April, 2019.
MARCO A. HERNANDEZ
United States District Judge

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