## Facts

- The SEC brought a civil enforcement action against Frederick Augustus Moran (Moran Sr.), Frederick Winston Moran (Moran Jr.), Moran Asset Management Inc. (Moran Asset), and Moran & Associates, Inc., Securities Brokerage (Moran Brokerage).
- The case was bifurcated into a liability phase and a later penalty phase; the opinion addressed liability after a bench trial.
- The SEC alleged Moran Jr., an employee of Salomon Brothers, obtained material nonpublic information about a possible Bell Atlantic–Telecommunications Inc. (TCI) transaction and tipped Moran Sr.
- The SEC alleged Moran Sr. traded (including through client and controlled accounts) in cable-related securities shortly before public developments concerning the transaction.
- Separately, the SEC alleged Moran Sr. and Moran Asset misrepresented or failed to disclose adviser compensation, conflicts, and related practices to advisory clients.
- The SEC also alleged Moran Sr., Moran Asset, and Moran Brokerage made willful misstatements or omissions in required regulatory filings, including investment adviser disclosures (Form ADV) and broker-dealer reports.

## Issues

1. Whether the SEC proved, by a preponderance of the evidence, that Moran Jr. communicated material nonpublic information to Moran Sr. and that Moran Sr. traded on that information in violation of Exchange Act § 10(b) and Rule 10b-5.
2. Whether Moran Sr. and Moran Asset engaged in fraud or deceit against advisory clients, within the meaning of Advisers Act §§ 206(1) and 206(2), through misrepresentations or omissions about conflicts, compensation, and related matters.
3. Whether Moran Sr., Moran Asset, and Moran Brokerage made willful misstatements or omissions in required adviser and broker-dealer filings and records, violating Advisers Act §§ 204 and 207, Rule 204-1(b)(1), and Exchange Act § 15(b) and Rule 15b3-1.

## Decision

- The court dismissed the SEC’s insider trading claims against all defendants under Exchange Act § 10(b) and Rule 10b-5.
- The court found Moran Sr. and Moran Asset liable for violating Advisers Act § 206(2) and for related recordkeeping and filing violations under Advisers Act §§ 204 and 207 and Rule 204-1(b)(1).
- The court found Moran Sr. and Moran Brokerage liable for broker-dealer reporting violations under Exchange Act § 15(b) and Rule 15b3-1.
- The court did not find liability under Advisers Act § 206(1) on the record presented.

## Legal Principles

- In an SEC civil insider trading case, the SEC must prove liability by a preponderance of the evidence, including that material nonpublic information was actually communicated and that trading occurred on the basis of that information; suspicious timing and relationships alone are insufficient when lawful explanations remain plausible.
- Advisers Act § 206(2) can be violated by negligent misrepresentations or omissions that operate as a fraud or deceit on clients or prospective clients; scienter is not required.
- Inaccurate, incomplete, or unamended adviser and broker-dealer regulatory filings can constitute independent violations, including willful misstatements or omissions under Advisers Act §§ 204 and 207 and Exchange Act § 15(b), and related rules governing records and broker-dealer reporting.

## Conclusion

The court rejected the SEC’s tipper-tippee insider trading theory for lack of persuasive proof of communication and trading on inside information, but imposed liability for negligent advisory-client fraud under Advisers Act § 206(2) and for willful misstatements or omissions in required adviser and broker-dealer filings and records.


SEC v. Moran (Moran I), 922 F. Supp. 867 (S.D.N.Y. 1996)