SEC Awarded $1 In Insider Trading Civil Suit

by Glen Shapiro, LawAndTax-News.com, New York

25 August 2003

Ruling earlier this month in SEC v. Smath, a civil case brought by the Securities and Exchange Commission against convicted former broker, Joseph T. Falcone, US District Judge Thomas C. Platt found in favour of the securities regulator, but awarded just $1 in disgorgement and penalties.

Mr Falcone was found guilty in 1999 on 13 counts of securities fraud, having illegally obtained information on various hot picks from then-unpublished issues of BusinessWeek's 'Inside Wall Street' column.

The fraud was discovered, according to the New York Law Journal, when the stock prices of the firms in question began to climb prior to their mention in the magazine. It emerged that Mr Falcone had received the information from another broker, who in turn had obtained it from an employee of a distributor of BusinessWeek.

Although the disgraced broker's appeal against his conviction for insider trading in 2000 was unsuccessful, doubts have been raised in the legal community as to whether his conduct amounted, strictly speaking, to insider trading.

The SEC had sought disgorgement of the $5,354 in illegal profits made by Mr Falcone, in addition to interest, and more than three times that sum in penalties. However, in view of the fact that a criminal case had already been brought against him, upon which he had spent around $75,000 in legal fees, Judge Platt ruled that:

'While this court would have no objection to an order of disgorgement of the profits and interest due to the victims in this case, it sees no basis to reward the SEC for spending tens of thousands of taxpayer dollars in pursuit of this action against Defendant. Plaintiff has already made an 'example' of Defendant and proved to the world that 'crime' does not pay.'

Recommended