Raj Rajaratnam is stuck with a $93 million civil fine for insider trading after the Second Circuit affirmed a district court ruling in favor of the SEC.

The former Galleon Group LLC head argued the civil penalty was unjust because the district judge improperly used the illicit profits Rajaratnam got his clients—not his personal gains—to calculate it. But a plain reading of the statute shows otherwise, the U.S. Court of Appeals for the Second Circuit said March 5.

Rajaratnam was sentenced to 11 years in prison and a $10 million fine after a federal jury convicted him of securities fraud and conspiracy in 2011. Dubbed “the modern face of illegal insider trading” by prosecutors, he profited off of illegal trades from tips about Goldman Sachs Group Inc., Intel Corp., and other companies, according to the U.S. government.

The Securities and Exchange Commission in a parallel civil case convinced a district judge to impose the maximum penalty of three times Rajaratnam’s insider trading profits. He argued that any penalty should be based solely on his personal profits of about $4.7 million, not the total profits of around $31 million.

But a plain reading of the treble damages statute shows the law “permits a civil penalty to be based on the total profit resulting from the violation,” the opinion said. Other federal securities laws specifically limit penalties to the defendant’s own gains, but this one didn’t, the court said.

The statute is meant to dissuade “the whole of the conduct Rajaratnam engaged in,” not just the portion that benefited him personally, the opinion said. Because part of Rajaratnam’s motivation was to enrich others, the penalty “must be keyed to the total scope of the scheme,” the court said.

Other Argument

Rajaratnam also argued that the district court should have considered his earlier criminal punishment—but not his wealth—when setting the civil penalty. But those arguments “distort the district court’s actual reasoning,” the opinion said.

District courts have wide discretion on whether to offset civil fines against criminal penalties, which the judge here didn’t abuse, the opinion said.

The Second Circuit has “never held” that district courts can’t consider a defendant’s wealth when setting a fine amount, the court said. “A fine that would be significantly painful to a person of modest means might be a mere slap on the wrist or ‘cost of doing business’ to a wealthier offender” like Rajaratnam, the opinion said.

Judge Gerard E. Lynch wrote the opinion, which Judges Reena Raggi and Christopher F. Droney joined.

Past Appeals

Rajaratnam’s appeal is the latest in a series of failed attempts to get the Second Circuit to overturn lower court decisions against him.

He twice asked the appellate court to throw out his conviction for insider trading from his criminal case. The court upheld his conviction both times in 2013 and 2018.

The Second Circuit also decided not to upend the conviction of former Goldman director Rajat Gupta in a related case in January. A federal jury in 2012 found Gupta guilty of giving Rajaratnam info about Goldman he could trade on.

Jones Day LLP represented Rajaratnam in his latest appeal.

The case is SEC v. Rajaratnam, 2d Cir., No. 11-5124, 3/5/19.