NEW YORK (Reuters) - Two former New York stockbrokers must pay $1.9 million (£1.3 million) after a U.S. jury found them liable for having engaged in insider trading based on confidential tips about an IBM Corp (>> International Business Machines Corp.) acquisition, a federal judge ruled on Monday.

U.S. District Judge Jed Rakoff in Manhattan ordered ex-Euro Pacific Capital Inc brokers Daryl Payton and Benjamin Durant to pay $546,459 and $1.36 million, respectively, following a trial in a lawsuit by the U.S. Securities and Exchange Commission.

Rakoff ruled that a civil penalty was appropriate given the jury's verdict in February. He rejected arguments by Durant that he should be forced to pay only $53,000, saying to accept his arguments would grant him "a significant undeserved windfall."

But Rakoff declined to adopt even steeper penalties sought by the SEC, which asked to have Payton pay $1.03 million and Durant pay $2.57 million, citing their "challenging financial circumstances."

Both men are now expected to challenge their liability on appeal amid ongoing litigation over what constitutes insider trading, an issue the U.S. Supreme Court in January said it would review.

Matthew Fishbein, Payton's lawyer, said, "There is every reason to believe that the SEC failed to prove the elements of its claim." Scott Morvillo, Durant's lawyer, said he was "confident that Mr. Durant will be vindicated on appeal."

An SEC spokesman declined to comment.

The SEC alleged that in 2009, an attorney at IBM Corp's (>> International Business Machines Corp.) law firm told his friend, Royal Bank of Scotland Group Plc (>> Royal Bank of Scotland Group plc) analyst Trent Martin, that he was working on IBM's $1.2 billion acquisition of SPSS Inc.

While the lawyer expected Martin not to tell anyone, Martin bought SPSS stock and told his roommate, Thomas Conradt, a Euro Pacific employee, the SEC said.

Conradt then told four Euro Pacific colleagues, including Payton and Durant, who made hundreds of thousands of dollars trading before the deal's announcement, the SEC said.

Federal prosecutors initially brought criminal charges over the case against five people, four of whom including Payton but not Durant pleaded guilty.

But after a December 2014 appellate ruling limited the scope of U.S. insider trading laws, a federal judge threw out the guilty pleas and prosecutors dropped the case. The SEC, facing a lower burden of proof, chose to move forward in its case.

The case is Securities and Exchange Commission v. Payton et al, U.S. District Court, Southern District of New York, No. 14-04644.

(Reporting by Nate Raymond in New York; Editing by Tom Brown and Cynthia Osterman)

By Nate Raymond