Securities Regulation Daily Wrap Up, ENFORCEMENT—S.D.N.Y.: Former Goldman analyst socked with $1.4 million default judgment in insider trading case, (Apr 7, 2022)

By Jeffrey H. Brochin, J.D.

A former Senior Compliance Analyst in Goldman Sach's Warsaw office used brokerage accounts opened in his parents' names to trade on sensitive inside information.

A district court entered a default judgment order against a former Goldman Sachs Senior Compliance Analyst charged by the SEC with insider trading. The Defendant abused his position with the overseas office of Goldman to obtain material nonpublic information from the investment bank's confidential database regarding 45 publicly-traded entities, and then trading in the equity securities of those 45 entities (SEC v. Sanchez, April 6, 2022, Castel, P.).

Attempts to avoid detection. Filed in September 2021, the complaint alleged that Jose Luis Casero Sanchez, who worked in Goldman's Warsaw, Poland office as a Senior Analyst in the Compliance Division, had broad access to highly sensitive information regarding mergers and other transactions in which his firm was involved, in connection with his work as a compliance analyst. Ironically, Sanchez had access to the information so that he could assist the firm’s efforts to ensure that employees kept the information confidential and did not engage in insider trading.

However, between September 2020 and May 2021, Sanchez allegedly abused that position of trust by trading on at least 45 events involving the investment bank’s clients based on the investment bank’s material, nonpublic information. To avoid detection, he allegedly traded in multiple U.S.-based brokerage accounts held in the name of one of his parents, who were named as Relief Defendants, and in most instances, he also refrained from placing large trades and made only modest profits. Sanchez allegedly generated more than $471,000 in ill-gotten gains during the course of the scheme.

Basis for injunctive relief. The complaint sought three forms of relief: (1) permanent injunctive relief against the Defendant for his violations of the federal securities laws, (2) disgorgement of his unlawful trading profits, and (3) a civil monetary penalty in the amount of three times his unlawful gains.

The court found that the Sanchez was alleged to have traded in 45 transactions involving multiple issuers, that he abused his position of trust to engage in insider trading, and that he attempted to hide the funds in accounts in his parents’ names. Because he did not appear to defend his actions or otherwise provide assurances against future violations (Sanchez's last known address was in Granada, Spain, and made no appearance in the case), those circumstances weighed in favor of granting injunctive relief, and therefore a permanent injunction against future violations of the antifraud and tender offer provisions of the securities laws was granted.

Maximum penalty entered. As to the SEC’s request for an order of disgorgement of the unlawful trading profits, the court noted that the SEC was not required to prove the disgorgement amount with certainty; rather, a reasonable approximation of profits was sufficient based on the SEC’s declaration detailing the relevant trading records and providing thorough analysis of the illicit trades. The court accepted the SEC’s reasonable calculation of the unlawful profits as at least $471,725.65, and Sanchez was ordered to disgorge $471,725.65 for his unlawful trading profits and $14,330.89 in prejudgment interest.

Civil penalties are authorized under section 21A of the Exchange Act, and three times the profit gained is the maximum allowed civil penalty. Because Sanchez unlawfully traded on multiple recurring occasions, abused his position of trust as a compliance analyst, demonstrated a high degree of scienter, and failed to appear to defend against the charges or otherwise explain his conduct, the court viewed the maximum civil penalty as appropriate, and granted the SEC’s request for $1,415,176.95 in civil penalties against him.

The case is No. 1:21-cv-08085.

Attorneys: Christopher Mario Colorado for the SEC.

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