$3.5M insider trading case includes designer shoes and weed

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A Surfside-based member of one of America’s wealthiest families, who runs Designer Brands, American Eagle and is connected to Albertsons stores, participated in an insider trading scheme that earned at least $3.5 millions of dollars.

But while David Schottenstein admitted to conspiring to commit securities fraud with Thursday’s guilty plea in federal court in Boston, attorneys for two other people facing the same charge as well as aiding and abetting securities fraud say they fight.

James Froccaro, representing Kris Bortnovsky of Surfside, emailed that his client “is innocent of the allegations in the indictment and will plead NOT GUILTY!”

Martin Weinberg, attorney for Ryan Shapiro of Bay Harbor Islands, sent an email stating that his client “is a highly regarded Miami-based entrepreneur and philanthropist. He fully intends to mount a vigorous defense that will demonstrate his factual and legal innocence of the allegations at issue in the Boston case.

In civil matters, the Securities and Exchange Commission filed a complaint against the companies Schottenstein, Bortnovsky, Shapiro and Bortnovsky Sakal Capital Management and Sakal US Fund.

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The SEC says Bortnovsky, using tips from Schottenstein that the latter collected from family members, made $4 million on insider trades involving the proposed 2018 merger of Albertsons and Rite Aid that canceled and a takeover of a Canadian cannabis company. According to the SEC, using inside knowledge enabled Shapiro to make a profit of $121,000 on these trades.

According to Schottenstein’s guilty plea and federal court sentencing table, the U.S. attorney recommends a prison sentence in the lower end of a range of 46 months to 57 months. Prosecutors also recommend restitution to be determined by the court, $634,893 in forfeiture and one year of supervised release after Schottenstein completes his prison sentence.

“I take full and sole responsibility for my conduct and deeply regret my actions,” David Schottenstein said in a statement emailed to the Miami Herald by his attorney, Eric Rosen. “I apologize to my family, friends and colleagues.”

DSW and “crush it”

“Family affairs” may be synonymous with “financial affairs” for the Schottenstein family, once ranked by Forbes among the 100 richest in the country. The Schottensteins shed their own blood, legally, for money.

Bal Harbor resident Beverley Schottenstein, 95, is still in federal court in Miami trying to settle the amount of money she will get from JP Morgan Securities and her grandsons Evan Schottenstein and Avi Schottenstein after a Financial Industry Regulatory Authority panel ruled they owed him nearly $19 million. for unauthorized transactions on his account.

Since 2005, Jay Schottenstein has been the executive chairman of Designer Brands, known as the DSW shoe company in 2017. He has also served on the board of directors of Albertsons since 2006. Jay Schottenstein is named in the SEC complaint as the name “Insider 2”. criminal indictment documents as “Individual 2”.

Miami Beach-based Joey Schottenstein, son of Jay, served as a member of the board of directors of DSW/Designer Brands and, for nine months of 2018, of the board of directors of Green Growth Brands (GGB). GGB is described in court documents as “a retailer of cannabis-related products.” Joey Schottenstein is referred to in the SEC complaint as “Insider 1” and in the criminal indictment documents as “Individual 1”.

The SEC complaint states that Jay Schottenstein is David Schottenstein’s uncle. But a rep for Joey and Jay Schottenstein says Joey is a first cousin of David, not a first cousin.

The scheme described in David Schottenstein’s charging documents began with David calling his cousin Joey to ask how DSW was doing and Joe telling David that DSW was “crushing” him.

So informed, David Schottenstein bought DSW shares and call option contracts on August 15, 2017. On the same day, according to prosecutors, David passed this information to Bortnovsky and Bortnovsky pushed the Sakal US Fund to buy 35 000 DSW shares. The charging documents claim that David Schottenstein and Bortnovsky then exchanged messages that day to cover up.

David Schottenstein: “To be clear and for the record, I don’t have any particular information or information or anything like that. Just a feeling.”

Bortnovsky: “I didn’t think anything different.”

Three days later, according to billing documents, David Schottenstein bought more DSW stock and call options and Bortnovsky asked the Sakal US Fund to buy $2 million worth of DSW stock. After DSW announced “strong quarterly financial results for the second quarter of 2017”, the documents indicate that Schottenstein, Bortnovsky, Sakal Capital Management and Sakal US Fund sold all DSW shares and securities in their personal and business accounts.

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Wasn’t the money from the Albertsons-Rite Aid merger?

David Schottenstein’s charging documents say that on August 31, he bought 99,000 shares of Rite Aid after Joey Schottenstein told him that Albertsons planned to buy Rite Aid.

From September 15, 2017 to February 20, 2018, according to the charging documents, David Schottenstein continued to extract Joey Schottenstein for information about the upcoming acquisition of Rite Aid which he would pass on to Bortnovsky and Shapiro. They also explained how it would help Kimco, part owner of Albertsons.

On Valentine’s Day 2018, Schottenstein sent Bortnovsky a message that he had purchased shares of Kimco and, according to the documents, Bortnovsky instructed Sakal US Fund to purchase approximately 250,000 shares of Rite Aid. A trust account controlled by Shapiro bought “tens of thousands” of Rite Aid shares, according to court documents, and more than 6,500 shares of Kimco.

The Wall Street Journal reported on February 20, 2018 that Albertsons planned to buy Rite Aid. Court documents say Shapiro messaged David Schottenstein: “Did you see the nice headline in the wsj?”

The Street reported that Rite Aid stock jumped 7.5% at the start of trading in New York, then ended the day up 3.2%. The charging documents say David Schottenstein and Shapiro sold tens of thousands of Rite Aid shares that day.

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Illegally graze the grass for the green?

The charging documents state that David Schottenstein learned of another deal from cousin Joey Schottenstein, “by virtue of their relationship of trust:” Green Growth Brands (GGB) was going to make a hostile takeover bid for Aphria, a Canadian company who produces cannabis. some products.

After David Schottenstein tipped off Shapiro and Bortnovsky on December 18, the charging documents say they purchased Aphria securities, as David Schottenstein had done four days earlier. And GGB announced its hostile takeover on December 27, 2018.

But Aphria rejected the offer on December 28, 2018. David Schottenstein learned from cousin Joe that GGB would not increase his offer. The charging documents say David Schottenstein told Shapiro “Hang on. Don’t do anything” and told Bortnovsky that GGB would likely have to raise its bid and others might start a bidding battle.

Bortnovsky allegedly offloaded thousands of Aphria securities through Sakal US Fund for $900,000 on December 28. On January 10, 2019, David Schottenstein told Shapiro “sell you know what please” as he disposed of 75,000 personally owned Aphria shares. By the time Bortnovsky finished selling his stock and call options, prosecutors said his proceeds were $4.6 million.

The charging documents say Shapiro forwarded an email to David Schottenstein showing he had made $175,000 on Aphria and another exchange allegedly made with inside information, but suffered a blow $120,000 on another purchase that David Schottenstein suggested without inside information.

“Schottenstein responded by asking Shapiro to donate, on Schottenstein’s behalf, half of Schottenstein’s net profits from Shapiro’s business based on Schottenstein’s advice to the synagogue Schottenstein and Shapiro attended,” reads court documents, “and noted that Shapiro would thus get” the deduction.

This story has been updated to reflect the family’s description of Joey Schottenstein and Jay Schottenstein’s relationship with David Schottenstein.

© 2022 Miami Herald. Visit miamiherald.com. Distributed by Tribune Content Agency, LLC.

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