U.S. Sec. & Exch. Comm'n v. Morano
| Decision Date | 01 April 2019 |
| Docket Number | No. 3:18-cv-00386-HZ,3:18-cv-00386-HZ |
| Parties | U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. ROBERT M. MORANO, Defendant. |
| Court | U.S. District Court — District of Oregon |
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 10b-5, 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 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.
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" throughemails, 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 heavytrading. 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.
Morano Dep. 41. Plaintiff apparently lost money on his September 2015 trading of UTi's stock. Fitzsimmons Decl., Ex. 2, ECF No. 20-3.
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) .
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 defendantconcealed 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)).
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.
Plaintiff contends that Defendant's conduct was egregious in light of his role with UTi, ...
To continue reading
Request your trial