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Securities and Exchange Commission v. Alberto Perez

November 17, 2011


The opinion of the court was delivered by: Chris Mcaliley United States Magistrate Judge



This matter comes before the Court on Motion by Plaintiff, the Securities and Exchange Commission ("the SEC"), for Final Judgment of Permanent Injunction and Other Relief against Alberto Perez [DE 265]. I have reviewed the parties' written submissions and applicable law. For the reasons stated below, Plaintiff's motion is granted in part.


Neff Corporation ("Neff") is a Delaware corporation with its corporate headquarters in Miami, Florida. [See DE 211, at p. 6]. In November, 2004, Neff was contacted by Odyssey Investment Partners, LLC ("Odyssey"), about a potential business combination. [Id. at p. 6]. On November 19, 2004, Odyssey and Neff entered into a confidentiality agreement and began negotiations. [Id.]. On January 31, 2005, Odyssey sent Neff a letter of intent in which Odyssey offered to purchase Neff for $450 million. [Id.]. On February 16, 2005, Odyssey increased its offer to $470 million and sent Neff a revised letter of intent, and on February 23, 2005, Neff and Odyssey executed the letter of intent for $470 million. [Id.]. Between March 1, 2005 and March 14, 2005, representatives of Odyssey, attorneys, and accountants engaged in due diligence activities at Neff headquarters. [Id. at p. 7]. Neff's board of directors met on April 6, 2005 and approved the acquisition, and the next day announced that Neff was being acquired by Odyssey for an estimated price of $8.19 to $8.27 per share. [Id.].

The SEC filed suit against several individuals alleging insider trading in connection with the Neff acquisition. [See DE 1]. Three of the Defendants entered into consent judgments with the SEC, and the Honorable Adalberto Jordan granted summary judgment in favor of one Defendant. Thereafter the remaining two Defendants, Alberto Perez ("Perez") and Sebastian de la Maza ("de la Maza"), and the SEC, consented to jurisdiction before me, and the case was tried before a jury in June, 2011. The jury found de la Maza to not be liable, but concluded that Perez had violated Section 10(b) and Rule 10-b-5 of the Securities and Exchange Act of 1934 ("the Act"), by engaging in insider trading by means of misappropriating material, confidential information concerning the purchase of Neff stock. The SEC now moves for entry of a final judgment against Perez.

In their Joint Pre-Trial Stipulation, the parties agreed to certain facts that provide some context for the issues now before the Court. Juan Carlos Mas ("Mas") was the CEO of Neff. [DE 211 at p. 1-2]. Perez was a long-time personal acquaintance of Mas, and was also employed by Mas to manage real estate projects. During the time when Neff was negotiating with Odyssey about the acquisition, Mas provided Perez office space in Neff headquarters, although he was not a Neff employee. Given their personal and professional relationship, Perez was in frequent communication with Mas. [Id. at p. 7-9]. Perez was very close to his brother, Jose Perez ("Jose"), who formerly worked at Neff, and the two were in frequent contact with each other. [Id. at 7, 9]. Perez and his brother jointly owned a securities brokerage account, and that account purchased 17,000 shares of Neff stock in March, 2005, while the confidential acquisition discussions were ongoing. [Id. at 9].

At trial, the SEC argued that Perez had access to confidential information regarding the acquisition through his relationship with Mas, as well as his position within the Neff headquarters, where activity concerning the acquisition was going on around him. [See Trial Transcript ("Tr.") Day 9 at pp. 6-9, DE 281]. The SEC further maintained that Perez knew that information concerning the acquisition was confidential, and that he breached a duty of confidentiality to Mas when he misappropriated the confidential information and used that information to trade in Neff stock, in violation of securities laws. [Id. at pp. 21-23].

Perez testified he had no knowledge of the purchases of Neff stock, because his brother, Jose, was in complete control of their joint brokerage account. [See Tr. Day 5 at pp. 189-90, DE 280]. The SEC argued that Perez's claim of ignorance was not believable. The SEC pointed to 39 separate purchases in the joint account, made over multiple days. [Tr. Day 9 at p. 5, DE 281]. The SEC produced evidence to show that on the days when Neff shares were purchased, Perez and his brother spoke by telephone on numerous occasions. [Tr. Day 5 at pp 87-97, DE 280].

The SEC now moves for entry of a final judgment against Perez with the following relief: (1) a permanent injunction; (2) disgorgement with pre-judgment interest; and (3) a civil penalty.


I address each form of relief sought by the SEC in turn.

A. Permanent Injunction

The SEC asks the Court to permanently enjoin Perez from further violations of Section 10(b) and Rule 10b-5. "[W]hether to grant or deny injunctive relief is addressed to the sound discretion of the district court. . . ." SEC v. Caterinicchia, 613 F.2d 102, 105 (5th Cir. 1980). To warrant injunctive relief, the SEC must establish that "'there is a reasonable likelihood that the defendant, if not enjoined, will engage in future violations of the securities laws.'" SEC v. Gunn, No. 3:08-CV-1013-G, 2010 U.S. Dist. LEXIS 88164 at * 10 (N.D. Tex. Aug. 25, 2010) (quoting SEC v. Mize, 615 F.2d 1046, 1051 (5th Cir. 1980), cert. denied, 449 U.S. 901 (1980). To prove this likelihood, the SEC must show more than past violations. Id. Courts look to several factors to determine whether a defendant's past conduct indicates that he is likely to violate securities laws in the future: [1] the egregiousness of the defendant's actions, [2] the isolated or recurrent nature of the infraction, [3] the degree of scienter involved, [4] the sincerity of the defendant's assurances against future violations, [5] the defendant's recognition of the wrongful nature of his conduct, and [6] the likelihood that the defendant's occupation will present opportunities for future violations. SEC v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004). I address each factor in turn.

1. Egregiousness

To determine whether a securities violation is egregious, courts consider several factors: whether the conduct was flagrant or merely a technical violation; whether the defendant's violation also constituted a breach of fiduciary duty; whether the violation caused others to suffer significant financial loss; and whether the violation ...

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