Corporate Governance

SEC v. Dorozhko: SEC?s Motion for Summary Judgment Granted

By Misty Dalke

The Ukranian hacker insider trading case came to an end earlier this year. 

On March 24, 2010, the trial court granted the Securities and Exchange Commission's ('SEC') motion for summary judgment against Oleksandr Dorozhko.  SEC v. Dorozhko, S.D.N.Y., No. 07 Civ. 9606 (NRB), 3/24/10. 

The court ordered Dorozhko enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 which prohibits 'the use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, …any manipulative or deceptive devise or contrivance in contravention of such rules and regulations as the Commission may prescribe…'  The court further ordered Dorozhko pay a civil penalty of $286,456.59, Dorozhko's net profit from trading IMS Health ('IMS') put options. 

The SEC first commenced its action against Dorozhko in October 2007 after Dorozhko hacked into IMS's confidential records and learned that IMS's not yet released earnings were below analyst estimates.  Dorozhko then used this information to purchase October puts on IMS.  After IMS released its earnings, IMS's stock price dropped, and Dorozhko sold his put options recognizing a profit of $286,456.59.  The SEC sought a temporary restraining order and asset freeze for Dorozhko. 

The trial court denied the SEC's motion holding that hacking did not constitute deceptive practices under Rule 10(b) of the Securities Exchange Act of 1934. 

In July 2009, the Second Circuit vacated the denial and remanded the case concluding that computer hacking to gain access to confidential information was considered a deceptive practice as reported in a previous post.  In February 2010, the SEC once again moved for summary judgment.  The court granted the SEC's motion for summary judgment after Dorozhko's attorney confirmed he was unable to get in touch with his client. 

The primary materials for this post are available on the DU Corporate Governance website. 

Full post as published by The Race to the Bottom on August 23, 2010 (boomark / email).