On June 21, 2016, the SEC announced that the failure of a defendant in an SEC enforcement action to live up to an agreement to "cooperate fully and truthfully" had resulted in that defendant's penalty being increased from $2,533 to a staggering $980,229. And it could have been worse! The SEC had asked the court to increase the defendant's penalty to over $2.9 million.
In 2012, the SEC sued several defendants, including Thomas C. Conradt, for insider trading related to IBM Corporation's 2009 acquisition of SPSS Inc. The SEC alleged that Conradt received inside information about the acquisition from his roommate, and then used that information to trade and to tip four friends. After the SEC filed the complaint against him, Conradt entered into a settlement agreement with the agency under which he agreed to disgorge his profits of $2,533.60 and cooperate fully and truthfully. The court overseeing Conradt's case deferred the final determination of Conradt's penalty until after the trial of the SEC's case against his friends in which he had agreed to coopeate.
In the SEC's February 2016 trial against Conradt's friends, Conradt testified about key conversations he had had with his friends about the acquisition. The SEC claimed, and the court agreed, that Conradt's trial testimony "materially varied from [his] testimony at his deposition" just seven months before "in ways that indicate that Conradt was intentionally watering down his prior testimony in contravention of his cooperation agreement and . . . in contravention of the truth."
The SEC then argued that because Conradt's watered-down testimony had breached his agreement to cooperate, that he should be liable for significant penalties far beyond $2,533. The SEC asked the court to impose a penalty on Conradt of $2,940,687, which was three times the amount of profits made by Conradt and his downstream tippees ($980,229) in their trading in SPSS securities. The court denied this request but did find that a penalty of one times the amount of the trading profits of Conradt and his downstream tippees was appropriate.
Conradt's allegedly watered-down testimony at trial will therefore cost him approximately $978,000 in additional penalties, which the court ordered that he pay to the SEC "at the rate of 20% of Conradt's gross monthly income beginning with July 2016."
Oooofffffff. That hurts!