The Securities and Exchange Commission announced charges against three Florida residents for trading in advance of market moving announcements involving DSW Inc., Rite Aid Corporation, and an attempt to acquire Aphria Inc., a Canadian cannabis-related business.
According to the SEC’s complaint, David Schottenstein of Surfside, Fla. repeatedly obtained inside information and used it to trade in advance of an August 2017 DSW earnings announcement and a December 2018 tender offer to acquire Aphria. Schottenstein also allegedly received information and traded ahead of the February 2018 announcement of a merger agreement between Albertsons Companies, Inc. and Rite Aid. According to the complaint, Schottenstein obtained the information from a cousin who served on the board of directors of both DSW and the company that had attempted to acquire Aphria, and whose family owned a private business that was involved in the Rite Aid transaction. Schottenstein allegedly generated illicit gains of more than $600,000 in his personal brokerage accounts from these three market moving announcements and tipped two close friends, Kris Bortnovsky, also of Surfside, and Ryan Shapiro of Bay Harbor Island, Fla., who traded ahead of these announcements.
Bortnovsky, who managed investment vehicles in which Schottenstein had invested, allegedly placed illicit trades for his investment management firm, defendant Sakal Capital Management, LLC, and one of its hedge funds, defendant Sakal U.S. Fund, LLC, in addition to trading in individual brokerage accounts owned by himself and another person. According to the SEC’s complaint, Bortnovsky used these various accounts to trade ahead of all three announcements for total profits of more than $4 million. Shapiro allegedly traded Rite Aid and Aphria and reaped total profits of approximately $121,000.
“Traders who seek to profit from inside information are no match for the SEC’s sophisticated data analysis methods like the ones used to uncover this alleged insider trading ring,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “We will continue to pursue illegal trading to bring wrongdoers to justice and ensure fair markets for all participants.”
The SEC’s complaint charges the three individuals and two investment vehicles with violating the antifraud provisions of the federal securities laws, and seeks permanent injunctions and civil penalties.
The U.S. Attorney’s Office for the District of Massachusetts today announced related criminal charges against Bortnovsky, Schottenstein, and Shapiro.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.