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U.S. Securities and Exchange Commission v. Morano

United States District Court, D. Oregon

April 1, 2019

U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
ROBERT M. MORANO, Defendant.

          OPINION AND ORDER

          MARCO A. HERNANDEZ, UNITED STATES DISTRICT JUDGE

         In this enforcement action brought by Plaintiff U.S. Securities and Exchange Commission, Defendant Robert M. Morano has stipulated to entry of judgment against him for illegal insider trading. Judgment, ECF No. 8. The Judgment permanently enjoins Defendant from violating § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Defendant has agreed to disgorge $38, 242 in illicit trading profits, plus prejudgment interest of $2, 317.

         Plaintiff now moves for the imposition of a civil monetary penalty of $114, 726, which is three times Defendant's illicit profits, the maximum penalty allowed under the Insider Trading Sanctions Act, 15 U.S.C. § 78u-1. Defendant, who is representing himself, opposes a civil penalty.

         The parties agree that this court will decide whether to impose a civil penalty and, if so, the amount of the penalty. Defendant agrees that (1) he is “precluded from arguing that he did not violate the federal securities law as alleged in the Complaint”; (2) he “may not challenge the validity” of the Consent or the Judgment; (3) for purposes of Plaintiff's motion for civil penalties, “the allegations of the Complaint shall be accepted as and deemed true” by this court; and (4) this court “may determine the issues raised in the motion on the basis of affidavits, declarations, excerpts of sworn deposition or investigative testimony, and documentary evidence, without regard to the standards for summary judgment” in Federal Rule of Civil Procedure 56(c). Judgment 4.

         For the following reasons, I grant Plaintiff's Motion for Monetary Penalty and order that Defendant pay a penalty of $75, 000.

         BACKGROUND

         In 2010, Defendant began working for UTi Worldwide, Inc. (UTi) as a senior communications specialist, working remotely from his residence in Portland, Oregon. Compl. ¶ 9, ECF No. 1. UTi was “a global supply chain services and solutions company . . . incorporated in the British Virgin Islands and based in Long Beach, California.” Compl. ¶ 10. UTi's common stock was registered with Plaintiff and traded on the NASDAQ.

         Defendant testified at his deposition that his “role [at UTi] was to basically develop or assist in the development of marketing and corporate communications messages and content for internal, meaning employee, or external, meaning customers or the general public” through emails, newsletters, brochures, or online postings. Morano Dep. 20, ECF No. 20-2. Under his employment agreement and UTi policy, Defendant “had a duty not to trade on or otherwise misuse confidential information.” Compl. ¶ 12. UTi prohibited its employees from “using material nonpublic information for personal gain in connection with trading in UTi securities.” Compl. ¶ 12. Defendant “received training on [UTi's] insider trading policy and affirmed that he read and understood the policy.” Compl. ¶ 12.

         For several weeks in fall 2015, UTi negotiated privately with DSV Air & Sea Holdings A/S (DSV), a Danish company seeking to acquire UTi. Compl. ¶¶ 10, 11, 13. On October 8, 2015, DSV and UTi agreed that DSV would acquire UTi for $7.10 per share. Compl. ¶ 13. “The acquisition price represented a premium of 50% over the market price of UTi stock, and valued the acquisition at approximately $1.35 billion.” Compl. ¶ 13. DSV and UTi planned to announce the agreement publically the next morning, October 9, 2015.

         On the afternoon of October 8, 2015, a UTi executive notified Defendant by phone about DSV's pending acquisition of UTi. Compl. ¶ 14. Defendant was to assist in preparing the announcement of the acquisition. The UTi executive told Defendant “that the information was confidential and instructed him to strictly maintain the confidentiality of the information about the acquisition until after the public announcement the very next day.” Compl. ¶ 15.

         Immediately after the phone call, Defendant “logged on to three separate brokerage accounts that he controlled and purchased in the open market a total of 17, 515 shares of UTi.” Compl. ¶ 16. Defendant paid an average of $4.78 per share.

         The next day, October 9, 2015, DSV and UTi announced DSV's purchase of UTi at $7.10 per share. After the announcement, UTi's share price increased more than 50% on heavy trading. UTi stock closed that day at $7.13 per share. Compl. ¶ 17. The next day, Defendant sold his UTi shares, realizing $38, 242 in illicit profits from the sale.

         In May 2017, Plaintiff's investigators telephoned Defendant to ask about his purchase of UTi stock on October 8, 2015. During the phone call, Defendant told Plaintiff's investigator that he was only a “peon” with UTi, and did not have access to insider information about DSV's acquisition. Morano Dep. 16. Defendant later testified at his deposition that during the initial conversation with Plaintiff, he “downplayed” his knowledge of the acquisition, in part because he “recognized, at least on a subconscious level, that I had done something that I shouldn't have done and was unwilling to acknowledge or admit that to myself, much less to someone whose identity I wasn't sure about, ” i.e., Plaintiff's investigator. Morano Dep. 19. Defendant testified that he “sensed that it was wrong, that I had an unfair advantage, but I really thought an insider was a registered officer, or fiduciary, or someone with a 5 percent or more . . . I thought I knew that it was wrong sort of morally or ethically, but okay legally because, well, I'm not an insider, so this isn't insider trading.” Morano Dep. 34.

         Defendant also testified that he had traded UTi's stock about eight or nine times before his October 2015 trades. Defendant testified that in early September 2015, he received a copy of a press release on UTi's earnings before the release was made public, and he

took it as good news and bought the stock. I really think that I waited until the press release crossed the wire, but that may not -- I've seen standards of two days -- two business days for the information to become nonpublic, even though it's been announced . . . giving the public two days to absorb it and respond to it, which I certainly did not do.

Morano Dep. 41. Plaintiff apparently lost money on his September 2015 trading of UTi's stock. Fitzsimmons ...


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