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| Hon. Gerard Lynch law.columbia.edu |
Former Jeffries & Co. managing director Joseph
Contorinis gained $7.2 million in profits for the Jeffries Paragon Fund while
avoiding $5.3 million in losses on the basis of material nonpublic tips he
received from a UBS employee. Contorinis
was convicted of conspiracy and securities fraud in 2010 and sentenced to six
years incarceration and criminal forfeiture of roughly $12.5 million—the amount
of profits and avoided losses the insider trading produced.
Contorinis appealed the conviction and the Second Circuit vacated the forfeiture order (while upholding the conviction) because the benefits did not accrue to him personally. The District Court determined on remand the appropriate forfeiture for Contorinis was the roughly $423K he realized in the insider trade-related compensation. Meanwhile, in a separate action before SDNY Judge Richard Sullivan, the SEC sought disgorgement of the $7.2 million in profits he obtained for the ironically-named Paragon Fund; Judge Sullivan ordered him to disgorge those profits, along with another $2.4 million in pre-judgment interest.
Contorinis appealed, maintaining he never controlled Paragon Fund profits, and should not be responsible for disgorgement as a result. An unpersuaded Circuit Judge Gerard Lynch opined, “The insider who, rather than passing the tip along to another, directly trades for that other’s account must equally disgorge the benefits he obtains for his favored beneficiary.”
Contorinis appealed the conviction and the Second Circuit vacated the forfeiture order (while upholding the conviction) because the benefits did not accrue to him personally. The District Court determined on remand the appropriate forfeiture for Contorinis was the roughly $423K he realized in the insider trade-related compensation. Meanwhile, in a separate action before SDNY Judge Richard Sullivan, the SEC sought disgorgement of the $7.2 million in profits he obtained for the ironically-named Paragon Fund; Judge Sullivan ordered him to disgorge those profits, along with another $2.4 million in pre-judgment interest.
Contorinis appealed, maintaining he never controlled Paragon Fund profits, and should not be responsible for disgorgement as a result. An unpersuaded Circuit Judge Gerard Lynch opined, “The insider who, rather than passing the tip along to another, directly trades for that other’s account must equally disgorge the benefits he obtains for his favored beneficiary.”
