|By PETER J. HENNING|
The notion of hitting someone where it really hurts – in the wallet – is being taken a step further these days when it comes to violations of securities laws.
The government has many avenues of recourse at its disposal when settling cases involving insider trading and investment fraud. Efforts to impose even greater costs on defendants were shown in two cases last week.
Last week, Judge
She explained that “Skowron knowingly committed insider trading, explicitly lied to the S.E.C. under oath, and failed to disclose his participation to
This means that
Her decision gives a firm whose employees engage in securities fraud another weapon to seek compensation for the harm they cause to its reputation. Defendants like
The firm continued to pay for Mr. Tourre’s lawyers under a provision in its corporate articles requiring the advance of such expenses to employees accused of misconduct in connection with their work. This obligation continues at least through the first appeal, and can even include the payment of penalties related to a violation.
The S.E.C. has long been concerned that defendants will pass along the cost of civil penalties to a company or an outside insurer, reducing the impact of a finding of a violation. For example,
The S.E.C., however, wants defendants feel the pain of a civil penalty. Therefore, the agency has been including provisions in settlements that prohibit a company from seeking reimbursement from insurers and deducting the payments on its taxes. As part of the 2003 settlement with a number of
In a filing last week, the S.E.C. asked the
This is a clever way to keep a defendant from asserting a claim against an employer by asking for an advance of the penalty before the case is completed, an amount the firm may never try to recover. Goldman is no longer a party to the case, so it cannot be ordered to refrain from paying any penalty imposed. The next best thing is to try to prohibit
Whether the S.E.C. will succeed in limiting corporate payment of penalties is another question. Issues of indemnification and advancement of costs are a matter of state law, and in
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