Yesterday, Judge Cote declined a defendant’s request to disqualify the SEC’s entire trial team on the eve of trial after the SEC received allegedly privileged communications between the defendants and their counsel.  The documents were seized by federal agents during the execution of a search warrant and provided to federal prosecutors, who in turn provided

Judge Pauley yesterday denied a request for the government to reimburse over $17,000 in travel expenses incurred at a deposition in London in the ongoing SEC case against Caledonian Bank (previous coverage of the case here).  Defendant Verdmont Capital had contended that two of its principals were not subject to deposition by the SEC, and the SEC agreed to compromise by “picking up the tab for travel” to depose the two principals at a neutral site in London.  The SEC advised Verdmont that it would only reimburse for expenses in line with the federal government’s travel reimbursement policy.  Verdmont, however, took the SEC promise to pay to heart, submitting receipts for first class airfare, $700 per night hotels, a $1,000 hotel bar tab, tours of St. Paul’s Cathedral, and a multi-day trip to Madrid after the depositions were done.

Continue Reading Judge Pauley Rejects Request to Force SEC to Pay Witness’s $17,000 Travel Bill

The SEC claims that insider trading defendant Thomas Condradt committed perjury at the trial of his co-defendant Daryl Payton in breach of his cooperation agreement and, instead of the agreed-upon penalty of $2,533, the SEC is now seeking a penalty of almost $3 million.  The jury ultimately convicted Payton, even though the SEC was clearly displeased with Conradt.  (We have covered this case in several posts, see here, including Mr. Payton’s own troubles with perjury allegations, see here.  More color is provided by an article in the WSJ (h/t) today).

The SEC argued that Conradt had to be repeatedly impeached with his prior deposition testimony at trial, at should be punished in a way that deters others from doing the same:
Continue Reading SEC Claims Cooperator Lied At Trial; Seeks To Up Penalty from $2,500 to $3 Million

In an opinion today, Judge Rakoff explained why he would decline to refer Darlyl Payton, a defendant who was recently found liable an SEC insider trading case, to the U.S. Attorney’s Office for a perjury prosecution related to Mr. Payton’s testimony in the SEC case.  Mr. Payton had pleaded guilty to criminal insider trading charges but later was allowed to withdraw the appeal in light of the Second Circuit’s decision in United States v. Newman, which held that insider trading required the recipient of a stock tip to have “knowledge that the insider disclosed confidential information in exchange for personal benefit.”  Judge Rakoff concluded that Mr. Payton testified at the SEC trial in a manner that was materially different than his earlier plea allocution, but nonetheless found that a criminal referral was not warranted for four reasons:
Continue Reading Judge Rakoff Reluctantly Declines to Refer Defendant in SEC Civil Case for Criminal Perjury Prosecution

In an opinion yesterday, Judge Rakoff denied a summary judgment motion brought by two SEC defendants who traded on a tip that IBM was about to acquire a company called SPSS.  The tip passed from a lawyer working on the deal (Dallas) to his friend (Martin), then to Martin’s roommate (Conradt) and, ultimately, to the two defendants.

The SEC ‘s theory was that Martin and Dallas had an understanding that the information would not be used for trading, and that Martin breached that duty by telling his roommate Conradt in exchange for various miscellaneous benefits from Conradt, such as his taking the lead on dealing with issues at their apartment.  The defendants acted with the required knowledge, according to the SEC, because they consciously avoided learning anything about the source of the tip.


Continue Reading Judge Rakoff : “Conscious Avoidance” of Source of Stock Tip Can Result in Liability, Even After Newman Decision

In an opinion dated Friday but released this morning, Judge Gardephe largely upheld subpoenas to a congressional committee and a staffer concerning allegedly unlawful stock trading under the STOCK Act, which essentially extended insider trading laws to Congress.  (See our previous coverage of the case here.)

Judge Gardephe found that the subpoenas were not

In an opinion yesterday, Judge Pauley harshly criticized the SEC for obtaining an ex parte freeze on the assets of a Cayman bank premised on the bank’s participation in a pump-and-dump scheme for unregistered securities.  The SEC should have known or quickly discovered, according to Judge Pauley, that the bank was acting as a broker

The SDNY Blog is relaunching as a publication of Steptoe & Johnson LLP.  We expect to post several times a week on decisions and other developments in the Southern District of New York.  You can find us right here at www.sdnyblog.com, or follow us on Twitter or Facebook.

Here’s a quick summary of what’s been happening in the Southern District while we were away:

  • Judge Berman vacated the NFL’s four-game suspension of New England Patriots quarterback Tom Brady for his alleged role in deflating footballs used during the 2015 AFC Championship Game.  Judge Berman concluded that “Brady had no notice that he could receive a four-game suspension for general awareness of ball deflation by others or participation in any scheme to deflate footballs, and non-cooperation with the ensuing Investigation.”


Continue Reading SDNY Blog Returns as Steptoe Blog

In an opinion today, Judge Berman denied a motion to enjoin an SEC administrative enforcement proceeding.  The proceeding was challenged on the ground that SEC administrative law judges are too insulated from executive oversight for purposes Article II of the Constitution, as interpreted by the Supreme Court in Free Enterprise Fund v. Pub. Co. Accounting Oversight Ed., 561 U.S. 477 (2010). Judge Berman agreed with the plaintiff on a threshold procedural point:  he ruled that the issues could be raised in district court, as opposed to raising them exclusively in the administrative proceeding itself (or on direct appeal to the Court of Appeals), because, absent a collateral challenge, the plaintiff would endure the very proceeding she was trying to block.  As Judge Berman observed: “The American Heritage New Dictionary of Cultural Literacy, 3d. Ed. (2005), defines the colloquial expression ‘you can’t unscramble an egg’ to mean ‘some processes are irreversible.’” But Judge Berman found the plaintiff was unlikely to succeed on the merits because he found that SEC ALJs’ insulation from removal was appropriate, given their adjudicatory (rather than policymaking) functions:
Continue Reading Judge Berman Refuses to Block SEC ALJ Proceeding; Finds ALJ Tenure Protections Likely Constitutional