## Facts

- Joseph Contorinis, a managing director at Jefferies & Co. and co-portfolio manager of the Jefferies Paragon Fund, traded Albertsons, Inc. securities using material nonpublic information.
- The inside information was provided by his friend Nicos Stephanou, a UBS investment banker working on the Albertsons acquisition.
- Contorinis executed trades using Paragon Fund capital, not his personal account.
- The trades generated approximately $7.26 million in profits for the Paragon Fund and its investors, not primarily for Contorinis personally.
- In a prior criminal case, a jury convicted Contorinis of conspiracy and multiple counts of insider trading based on the same conduct; the conviction and sentence were affirmed on appeal.
- In the subsequent civil enforcement action, the SEC obtained summary judgment based on issue preclusion and sought disgorgement, prejudgment interest, and injunctive relief.

## Issues

1. Whether an insider trader who executes trades for a fund using the fund’s capital may be ordered to disgorge the full illegal profits generated for the fund, even if the trader did not personally receive most of those profits.
2. Whether the district court abused its discretion by entering a permanent injunction against future securities-law violations.
3. Whether the district court abused its discretion by awarding prejudgment interest on the full disgorgement amount.

## Decision

- The Second Circuit affirmed the judgment.
- The court held the district court had authority to order disgorgement of $7,260,604, representing all profits generated by the unlawful trades for the Paragon Fund.
- The court upheld the permanent injunction against future violations of Exchange Act § 10(b) and Rule 10b-5.
- The court upheld prejudgment interest on the entire disgorgement amount.

## Legal Principles

- Disgorgement in SEC actions is an equitable remedy aimed at depriving wrongdoers of ill-gotten gains and deterring securities-law violations by making misconduct unprofitable.
- A defendant may be required to disgorge profits realized by third parties when those profits are causally attributable to the defendant’s securities fraud, even if the defendant did not personally retain the bulk of the profits.
- Disgorgement may extend beyond a defendant’s direct personal benefit by analogy to tipper liability, where tippers can be required to disgorge tippee profits attributable to the tipper’s misconduct.
- Disgorgement must be tied to the profits generated by the wrongdoing and is limited to net gains rather than punitive amounts.
- Permanent injunctions and prejudgment interest in SEC enforcement actions are reviewed for abuse of discretion; prejudgment interest may be imposed to prevent a defendant from benefiting from the time value of unlawful gains.

## Conclusion

The Second Circuit held that a portfolio manager who commits insider trading on behalf of a fund can be ordered to disgorge the fund’s resulting trading profits, with prejudgment interest and injunctive relief, even when the manager did not personally receive most of the profits.


Sec. & Exch. Comm’n v. Contorinis, 743 F.3d 296 (2d Cir. 2014)