The U.S. Securities and Exchange Commission (SEC) announced charges against three Florida residents on Thursday for their alleged involvement in an insider trading ring that is believed to have netted millions of dollars in illicit gains, including from tips tied to an ill-fated attempted takeover of Canadian pot producer Aphria Inc.
The regulator claims David Schottenstein, Kris Bortnovsky, and Ryan Shapiro received inside non-public information and traded ahead of an announcement about Green Growth Brands Inc.’s takeover offer for Aphria in Dec. 2018, in advance of a DSW Inc. quarterly release in Aug. 2017, and a merger agreement between Albertsons Companies Inc. and Rite Aid Corp. in 2018.
Green Growth Brands initially announced its plan to make a $2.8-billion offer to buy Aphria in Dec. 2018. That came shortly after a short-seller’s report that alleged Aphria executives engaged in self-dealing and overpaid for certain international assets; those claims caused the company's shares to lose as much as half of their value. Green Growth ultimately aborted its hostile bid for Aphria in April 2019.
According to a complaint filed by the SEC, Schottenstein was tipped off by a cousin who served on the board of directors of Green Growth Brands and DSW, and whose family owned a private business that was involved in the Rite Aid transaction. The complaint alleges that Schottenstein made US$600,000 in profit related to the announcements and also tipped Bortnovsky and Shapiro.
The SEC alleges that Bortnovsky made about US$4 million in illicit gains tied to the insider information, while Shapiro allegedly netted roughly US$121,000 in profits.
The SEC complaint accuses the three individuals of violating the antifraud provisions of U.S. securities laws and seeks permanent injunctions and civil penalties. The regulator noted that related criminal charges were laid against the three individuals by the U.S. Attorney’s Office for the District of Massachusetts.
"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, in a statement.