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Martin Flumenbaum and Brad S. Karp

Earlier this month, in S.E.C. v. Rajaratnam, the U.S. Court of Appeals for the Second Circuit reviewed whether the penalty available in a civil insider trading action pursuant to Section 21A of the Securities Exchange Act of 1934 (the Exchange Act) is limited to a defendant’s personal profits. In a unanimous opinion, written by Judge Gerard Lynch, and joined by Judges Reena Raggi and Christopher Droney, the Second Circuit held that such a penalty is not so limited, and can be based on profits gained by other individuals or entities as a result of a defendant’s insider trading violations. Against the backdrop of other recent developments in insider trading law, the Second Circuit’s discussion of the contours of Section 21A’s penalty provision represents an interesting extension of insider trading enforcement authority.

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