Former Portfolio Manager Loses Appeal in Insider Trading Cases (with Bondi Comment)

The Second U.S. Circuit Court of Appeals in New York ruled (in a 2-1 decision) that former Jefferies Group portfolio manager, Joseph Contorinis, must pay over $9 million in fines for illegal profits and civil forfeiture regarding alleged insider trades from the firm's Paragon Fund. Currently, Contorinis is serving a six-year prison term following his 2010 conviction for trading securities in Albertsons Inc. ahead of its 2006 buyout by Supervalu Inc., CVS Corp.

Bondi Comment: The Second Circuit applied disgorgement in a punitive nature, but, as Judge Chin correctly explained in his dissent, disgorgement is an equitable remedy aimed to remove any ill-gotten gains received by a wrongdoer. By applying disgorgement broadly to require Contorinis to "disgorge" not only the gains he personally received but also the equivalent of the gains received by his firm, the Second Circuit applied disgorgement in a punitive fashion. There is a serious question whether other circuits will follow this approach.A version of this comment first appeared in a Wall Street Journal article (2/18/2014).

See:SEC v. Contorinis, 2nd U.S. Circuit Court of Appeals, No. 12-1723; United States v. Contorinis.