A retired Croatian seamstress has won a court victory against the U.S. Securities and Exchange Commission in an improbable case implicating her in an insider-trading ring.

U.S. District Judge Kimba Wood threw out a $5.72 million default judgment won by the SEC last November against Sonja Anticevic, who is believed to be in her late 60s and living on a low income in Croatia.

Prosecutors in 2005 accused Anticevic of holding two brokerage accounts in her name that her nephew David Pajcin, a former Goldman Sachs Group Inc broker, used for trades that generated $6.7 million of illegal profits.

Wood imposed the $5.72 million penalty after Anticevic appeared to ignore four SEC complaints. Anticevic later hired a Croatian lawyer, who said his client responded to the court in an August 31, 2009, letter but sent it to the wrong address.

Noting that Anticevic is a foreigner and likely not familiar with the U.S. legal system and court procedures, Wood vacated the penalty in an order released late Friday.

The judge said she likely would not have imposed a penalty had she heard from Anticevic sooner.

She also said Anticevic raised a meritorious defense that she did not know and had no reason to know that Pajcin was conducting illegal trading, and added that the award's large size weighed in favor of vacating the judgment.

The judge directed Anticevic to answer the SEC's complaint electronically by July 21.

SEC lawyer Scott Black said courts prefer to adjudicate cases on the merits rather than through default judgments.

He said the SEC is unlikely to recover more from Anticevic than the $2.8 million of proceeds frozen in a court-controlled account. Depositions will begin if Anticevic answers the complaint. We'll see what she does, he said.

Anticevic's lawyer, Ante Madunic, welcomed the ruling.

Ms. Anticevic had not been in a proper (legal) position to give a testimony about her innocence, he said. We will certainly use the opportunity for her to provide testimony, after which I believe that this case will be concluded.

Prosecutors said the insider-trading ring traded on merger tips and a grand jury probe involving drugmaker Bristol-Myers Squibb Co . Tippers included a former Merrill Lynch & Co employee and a New Jersey postal worker. Both pleaded guilty, as did Pajcin and former Goldman colleague Eugene Plotkin.

The case is SEC v. Anticevic et al, U.S. District Court, Southern District of New York, No. 05-6991.

(Reporting by Jonathan Stempel; Additional reporting by Igor Ilic in Zagreb, Croatia; editing by John Wallace)

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