Second Circuit Maintains Expansive View of Civil Liability for Insider Trading

On February 18, 2014, in SEC v. Contorinis, the Court of Appeals for the Second Circuit affirmed an order requiring Joseph Contorinis to personally disgorge more than $7 million in insider trading profits realized by a fund he co-managed, even though he did not personally receive those profits. In doing so, the court continued its expansive reading of civil liability for insider trading.

The Second Circuit’s broad view of civil disgorgement follows an earlier opinion in which the court adopted a similarly expansive view of what is required to establish civil liability for insider trading. In 2012, in SEC v. Obus, the Second Circuit held that actual knowledge of a breach of a duty was not required to establish civil liability for either a tipper or a tippee. Rather, a tipper’s liability could flow from recklessly disregarding the nature of the confidential or nonpublic information, and a tippee’s liability could arise if he had “reason to know”4 that the information may have been disclosed in violation of a duty of confidentiality.

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