When Small Insider Trading Profits Yield a Max Penalty

Insider trading has long been a key component of the Commission’s enforcement program. Yet over the years the exact theory being employed has varied. Nevertheless, the core theory has remained constant – using inside information for personal benefit in connection with the purchase and sale of a security is prohibited. When, however, all the basic elements are admitted, standard criminal remedies are imposed in the parallel case, what should the SEC demand for remedies. Stated differently, what remains as remedies in an SEC civil enforcement action? This was the issue in SEC v. Levoff, Civil Action No. 2:19-cv-054536 (D. N.J. July 2, 2024).

Gene Daniel Levoff is a lawyer and the Director of Corporate Law from 2008 to 2013 and later the Senior Director of Corporate Law at a large, well-known Company. He also served on Company Disclosure Committee from 2008 through 2018 and at one point served as Chair. This position gave him access to inside information about Company.

Over a five-year period, beginning in 2015 Mr. Levoff engaged in insider trading, using information obtained from Company to trade in its shares. Through a series of six trades Mr. Levoff had profits of, or avoided losses, which yielded him $382,480. At the time he had a net worth of over $30 million.

In 2023 Mr. Levoff’s insider trading scheme ended. He was charged by the U.S. Attorney’s Office with insider trading. He pleaded guilty in December 2023. The Court sentenced him to four years of probation, 2,000 hours of community service and ordered that he pay a fine of $30,000 and forfeit $604,000. Mr. Levoff had a mental disorder which did not erase his liability. Mr. Levoff described his disorder as “self-sabotage.” While Defendant was wealthy, he did not live a lavish life-style.

The Commission moved for summary judgement in its case following the resolution of the criminal action. Its motion was based on the guilty plea in the criminal case. Mr. Levoff also moved for summary judgment. The ultimate question for resolution, however, was not guilt or innocence but the amount of the penalty. Frequently, in cases such as this the Commission agrees that monetary remedies are satisfied by those paid in the parallel criminal case.

Not here. The key question in this case became the amount of the penalty. The agency wanted three times the profits made/losses avoided or $1,147,440. The Court considered the standard factors – the egregiousness of the violations, the isolated or recurrent nature of them, the degree of scienter and the individual’s net worth. While the Court cited Mr. Levoff’s “mental disorders,” those were not determinative.

Ultimately the Court issued a written opinion which seemed to focus on the high degree of scienter. While Mr. Levoff did have a mental disorder and made little money from the trades, he also served on the committee at the Company that “ensured compliance with securities laws and applicable trading restrictions,” the Court wrote. No credit from the criminal case offset the remedies ordered in the civil case. Mr. Levoff was ordered to pay a penalty of $1,147,440.