Securities and Exchange Commission v. Contorinis

Joseph Contorinis (defendant), an investment-fund manager, received material nonpublic information from an employee at UBS Investment Bank that the grocery chain Albertson’s, Inc., would be involved in a large financial acquisition. Contorinis received regular updates from the employee with nonpublic information. Based on that confidential information, Contorinis made several well-timed trades using the assets of the Jeffries Paragon Fund (Paragon), over which he had full investment control. Paragon realized over $7 million in profits and avoided $5 million in losses based on these insider trades. After being convicted for securities fraud and conspiracy, Contorinis was ordered to pay the total of Paragon’s realized profits and avoided losses as a criminal forfeiture. After appeal, the district court recalculated the proper forfeiture amount as around $400,000, which reflected only the personal profits obtained as compensation by Contorinis for making the favorable trades for Paragon. The Securities and Exchange Commission (SEC) (plaintiff) filed a civil action after Contorinis’s indictment, requesting that Contorinis be ordered to disgorge the $7 million realized in profit by Paragon based on his insider trades. After his conviction, an order granting summary judgment was entered, requiring among other things the disgorgement of the profits received by Paragon as a result of Contorinis’s insider trades. Contorinis appealed, arguing against the disgorgement of the full amount because he never received or controlled the profits.