Want To Avoid An Injunction Sought By The SEC?
When the SEC brings a case against a defendant in federal court, it almost always seeks a curious remedy – an injunction not to violate the statute it is accusing the defendant of violating. Now, the law already requires what the proposed injunction would say. If Section 10(b) of the Exchange Act says you’re not supposed to commit securities fraud, you’re really not supposed to commit securities fraud. Still, despite some judicial misgivings about these obey-the-law injunctions in recent years, the SEC and many courts press on. And the injunctions are granted in the vast majority of cases when liability is established. But not always. On November 17th, Alberto Perez dodged an injunctive bullet, and his insider trading case is instructive for individuals who might be caught in a similar situation. While the SEC did not have nearly the evidence that has been available in some more prominent recent trials, it was able to show that:
Perez had access to the physical space at Neff Corporation, based in Miami;
a brokerage account Perez held with his brother bought 17,000 shares of stock in Neff Corporation at a time when Neff was in negotiations to be acquired by Odyssey Investment Partners;
the joint account made 39 separate purchases over several days;
on days when shares were purchased, Perez and his brother spoke over the phone on numerous occasions.
On this circumstantial evidence, a jury in the Southern District of Florida found Perez had violated Section 10(b) and Rule 10b-5. The court forced Perez to pay disgorgement of almost $400,000, prejudgment interest of roughly $162,000, and a civil penalty of $50,000. But it did not impose an injunction against future violations of the statute and rule. One of the factors in considering whether an injunction should issue is the sincerity of the defendant’s assurances against future violations. To answer this factor, Perez submitted a declaration. Here’s what it said:
I have tremendous respect for this Court and the legal process, although I respectfully do not agree with the jury’s verdict in this case.
I fully appreciate the importance of the securities laws and the SEC’s role in protecting the marketplace.
I will never again place myself in a position where my conduct can be called into question by the SEC. For example, although I continue to have a relationship with my brother, Jose Perez, a co-defendant in this case, the nature of that relationship has undergone significant changes as a result of the instant case. Specifically, I no longer share any type of joint trading account with my brother. In addition, all business relationships with my brother now require my affirmative participation and a degree of oversight.
The SEC’s investigation of me and the litigation related to this case have had an appreciable and negative impact on my life. The allegations have embarrassed me professionally and personally. Further, the investigation and trial have caused a painful reassessment of my relationship with my brother, Jose Perez, with whom I had previously been extremely close.
Although I do not intend to ever seek any association with a publically [sic] traded company and can assure the Court I will never in the future be associated with anyone who violates securities laws, I feel the imposition of any injunction at this time would add to the stigma I have already been subject to.
The declaration is very humanizing and, to me, strikes the right balance between sticking to his story and respect for the painful legal process he has just gone through. On reading it, I get the sense that even if Perez disagrees with the jury’s view of the facts, he has really suffered through this ordeal and will take significant steps to avoid a similar situation. I find the part about his brother to be especially affecting; one hates to see a family torn apart under any circumstances. Anyway, if the declaration was drafted by his attorneys – and it likely was – it comes across well, and is skillful advocacy. Such a declaration wouldn’t work for a corporate entity, but individuals in the same spot might consider a similar tack if the facts are at their disposal.