Securities and Exchange Commission v. Klein

Background

The Securities and Exchange Commission (SEC) sued Pablo Rubenstein, Eduardo Rubenstein, and Mark Klein. The complaint alleged that Pablo learned material non-public information about a biopharmaceutical company and passed it to his brother, Eduardo. Eduardo used the information to sell shares and avoid losses after the information became public and the company’s stock price dropped. Eduardo also passed the information to his son-in-law, Klein, who sold shares and avoided losses.

All three defendants entered settlement agreements with the SEC. The court entered judgment against Pablo on August 1, 2022, including a $225,902.25 civil penalty. On April 18, 2023, the court entered judgment against Eduardo and Klein, leaving the amounts of their civil penalties for later determination.

Penalty Motions and Recommendation

The SEC moved for civil penalties of $875,216 against Eduardo and $517,435 against Klein. The SEC’s proposed amount for Eduardo represented two-and-a-half times the losses Eduardo avoided by trading, plus one-and-a-half times the losses Klein avoided. The SEC’s proposed amount for Klein represented two-and-a-half times the losses Klein avoided.

The motions were referred to Magistrate Judge Stewart D. Aaron, who issued a report and recommendation. He recommended a $545,827 penalty for Eduardo and a $310,461 penalty for Klein. The recommended penalty for Eduardo represented one-and-a-half times the losses he avoided plus the losses Klein avoided. The recommended penalty for Klein represented one-and-a-half times the losses he avoided. The recommendation relied on the defendants’ acceptance of responsibility and expressions of remorse, as well as the lack of substantial loss or risk of substantial loss caused by their conduct.

Court’s Ruling

The report gave the parties a deadline to object, but no timely objections were filed. Because there were no timely objections, Judge Lorna G. Schofield reviewed the record for clear error, meaning an obvious mistake. She found no clear error and adopted the report and recommendation in full.

The court ordered Eduardo Rubenstein to pay a civil penalty of $545,827 and Mark Klein to pay a civil penalty of $310,461. The clerk was directed to terminate the case.