Three friends profited millions from insider trading and now face criminal charges

Rick Steves

David Schottenstein made over $600,000 in profits, close friend Ryan Shapiro made about $121,000, but Kris Bortnovsky made the most out of the inside information: $4 million.

The Securities and Exchange Commission has pressed charges against three traders for making their orders in advance of market moving announcements, commonly known as insider trading.

David Schottenstein allegedly 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.

The SEC argued he also received information and traded ahead of the February 2018 announcement of a merger agreement between Albertsons Companies, Inc. and Rite Aid.

Source was a cousin

According to the US regulator, the source of information was David Schottenstein’s cousin, who served on the board of directors of both DSW and the company that had attempted to acquire Aphria. The cousin’s family also owned a private business that was involved in the Rite Aid transaction.

Besides Schottenstein alleged illicit gains of more than $600,000 in his personal brokerage accounts from these three market moving announcements, two other individuals made similar trades ahead of these announcements.

This happened because Schottenstein tipped two close friends, Kris Bortnovsky and Ryan Shapiro, who took the opportunity to profit from insider trading. Shapiro allegedly traded Rite Aid and Aphria and reaped total profits of approximately $121,000.

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Insider traders “are no match for the SEC’s sophisticated data analysis”

Kris Bortnovsky’s trades were made through his investment management firm, Sakal Capital Management, LLC, and one of its hedge funds, Sakal U.S. Fund, LLC, in addition to trading in individual brokerage accounts owned by himself and another person. His total profits totaled more than $4 million.

Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit, said: “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. 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 pressed criminal charges against Bortnovsky, Schottenstein, and Shapiro.

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