U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 25923 / January 11, 2024
Securities and Exchange Commission v. David Schottenstein, Kris Bortnovsky, Ryan Shapiro, Sakal Capital Management, LLC, and Sakal U.S. Fund, LLC, No. 1:22-CV-10023 (D. Mass. filed Jan. 6, 2022)
SEC Obtains Final Judgment Against Florida Resident for Insider Trading Scheme
On January 8, 2024, the U.S. District Court for the District of Massachusetts entered a final judgment against Florida resident David Schottenstein for misappropriating inside information about three corporate announcements from his cousin and using that information to reap profits from trading in advance of those announcements.
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 Inc. earnings announcement and a December 2018 tender offer to acquire Aphria Inc. 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. In addition to trading for his own personal gain, the complaint alleges that Schottenstein tipped two friends who traded ahead of these announcements.
Schottenstein consented to a final judgment that permanently enjoins him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder and orders him to pay disgorgement of $536,752.90 and prejudgment interest of $67,933.16, which is deemed satisfied by the order of forfeiture in the parallel criminal case against him, United States v. David Schottenstein, Case No. 1:22-cr-10005-DPW (D. Mass.). Schottenstein pleaded guilty to conspiracy to commit securities fraud in the parallel case in February 2022 and in March 2023 was sentenced to one year and one day in prison, five years of supervised release, and ordered to forfeit $634,893.
The SEC’s case was handled by Megan Bergstrom and Michele T. Perillo of the Enforcement Division’s Market Abuse Unit and Susan Cooke of the Boston Regional Office.