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Three Friends Indicted in $4M Insider-Trading Scheme

Three friends used family ties to the boards of public companies including Designer Brands Inc. and Albertsons to get tips that gained them at least $4 million in illicit trading profits, the Wall Street Journal reports. Hedge-fund manager Kris Bortnovsky and entrepreneur Ryan Shapiro were indicted Thursday in Boston and charged with securities fraud and conspiracy. The third trader, David Schottenstein, agreed to plead guilty to conspiracy to commit securities fraud. Schottenstein, the founder of a sunglasses retailer, passed illicit tips to his friends that he got from a cousin who is a board member of Designer Brands. The cousin also knew about grocery retailer Albertsons' 2018 plan to merge with Rite Aid Corp. because his father served on Albertsons’ board of directors. The cousin shared the undisclosed merger plan with Schottenstein, who prosecutors say traded on the information and shared the tip with his friends. The traders purchased shares of Rite Aid, whose stock price rose after the deal became public in February 2018, and other securities that would pay off if the merger became public, according to the Securities and Exchange Commission, which filed a civil fraud lawsuit against the three men. “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 the SEC's Joseph Sansone.. Bortnovsky and Shapiro were arrested last month in Miami, but the criminal complaint against them was sealed until Thursday, when a federal grand jury in Boston returned an indictment against them.

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