Ex-Stockbroker’s $1M Civil Insider Penalty Upheld by 2d Circuit

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By Phyllis Diamond

A former stockbroker whose guilty plea to criminal insider trading charges was vacated failed Aug. 23 to beat a related civil penalty of almost $1 million.

The district court properly refused to overturn Thomas Conradt’s civil insider trading settlement with the Securities and Exchange Commission after his criminal case was dropped, the U.S. Court of Appeals for the Second Circuit said ( SEC v. Conradt , 2017 BL 295083, 2d Cir., No. 15-2887, 8/23/17 ).

Conradt’s consent agreement was based solely on his consent—not on any collateral consequences of his guilty plea in the parallel criminal action, the per curiam court said.

The appeals court also affirmed that Conradt breached the terms of his cooperation pact with the government, which would have earned him a substantially lower civil penalty.

The court said his testimony at the trial of two alleged tippees “materially varied from his deposition in contravention of the truth.” Moreover, while the district court imposed a hefty penalty,"the amount was clearly within the range of permissible outcomes,” according to the Second Circuit.

The SEC declined to comment on the ruling.

Civil Settlement

In 2013, Conradt pleaded guilty to trading on a roommate’s tips about IBM Corp.’s planned acquisition of a software company and tipping two colleagues at Euro Pacific Capital Inc. to do so as well. Conradt also settled a related SEC civil enforcement action, agreeing to disgorge $2,533 in allegedly unlawful profits.

In settling, the SEC agreed not to seek a civil penalty beyond $2,533, to be decided at a later date, in exchange for Conradt’s assistance in the ongoing litigation. However, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York agreed with the commission that Conradt breached his cooperation agreement by “intentionally watering down” his deposition testimony several months later at the trial of his two alleged tippees and ordered Conradt to dole out $980,229 instead.In his brief to the Second Circuit, Conradt said his settlement of the civil case was “based on” his guilty plea in the later vacated criminal action and should have been thrown out as well. He also told the appeals court the “supposed discrepancies” in his trial testimony were inconsequential, “and far below where other courts have held that a cooperator breached cooperation agreements.”

Conradt’s criminal case was withdrawn in early 2015 after the Second Circuit in United States v. Newman made it harder to hold “downstream tippees” like him liable.

Conradt’s appeal in the civil case was argued Aug. 15 by Justin Santagata, Kaufman Semeraro & Leibman LLP, Fort Lee, N.J. In an email, he told Bloomberg BNA he hasn’t yet read the opinion.

To contact the reporter on this story: Phyllis Diamond in Washington at pdiamond@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

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