Two High Profile Cases Move To Toward Conclusion

The SEC announced two settlements yesterday as it moved forward to resolve two of the highest profile cases it has brought in recent years — Madoff and Guttenberg. Action in the former was taken in anticipation of the completion of the criminal case next week, while in the latter it follows the resolution of the criminal action.

In In the Matter of Bernard L. Madoff, Adm. Proc. File No. 3-13520 (June 16, 2009), the Commission filed a settled administrative proceeding against reputed Ponzi scheme king Bernard Madoff. In the action, Mr. Madoff, a former chairman of the board of directors of the NASDAQ stock market and the founder of Bernard L. Madoff Investment Securities LLC, consented to the entry of an order under Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act, barring him from association with any broker, dealer, or investment adviser. The Commission’s civil injunctive action against Mr. Madoff is still pending. SEC v. Madoff, Civil Action No. 08-10791 (S.D.N.Y.). There, Mr. Madoff has consented to the entry of a permanent injunction. The question of relief has not been resolved.

The administrative proceeding against Mr. Madoff anticipates his court appearance next Monday, June 22, 2009 in the criminal proceeding against him, discussed here. Mr. Madoff, who has admitted to running what may well be the largest Ponzi scheme in history, is due to be sentenced on Monday. It is widely expected that Mr. Madoff, 70, will effectively be sentenced to life in prison. Presumably, the SEC will resolve its civil action against Mr. Madoff following the sentencing. Key questions to be resolved focus on the amount of disgorgement and penalties to be paid.

The SEC concluded its insider trading action as to Mr. Guttenberg, SEC v. Guttenberg, Civil Action No. 07 CV 1774 (S.D.N.Y.). Mr. Guttenberg consented to the entry of a permanent injunction prohibiting future violations of the antifraud provisions of the Securities Act and the Exchange Act. He also agreed to the entry of an order requiring him to pay disgorgement of $15,810,000. See Lit. Release No. 21086 (June 16, 2009). In a related administrative proceeding, Mr. Gutenberg agreed to the entry of an order barring him from the securities business.

The Guttenberg case has been called one of the most significant insider trading cases brought by the SEC since the Wall Street scandals of the 1980s. The case was brought against fourteen individuals, most of whom were Wall Street professionals. Mr. Guttenberg, an employee of UBS, was at the center of one insider trading ring which furnished inside information to others regarding up coming recommendations of his employer.

Parallel criminal cases were brought against eleven individuals including Mr. Guttenberg. In those cases, all of the defendants have pled guilt. Mr. Guttenberg was sentenced to 78 months in prison. U.S. v. Guttenberg, Case No. 1:07-CR-141 (S.D.N.Y.).