The U.S. Securities and Exchange Commission has charged a stock trader and three associates with making $3.2 million in illicit profits by trading on inside information about secondary stock offerings they had stolen from investment banks.
According to a civil complaint, former day trader Steven Fishoff, 58, orchestrated a serial insider-trading scheme that involved using false pretenses to obtain advance knowledge of the offerings from the banks and then short-selling the issuers’ stock before the dilutive offerings were publicly announced.
FBI agents on Wednesday arrested Fishoff, his brother-in-law Steven Costantin, 54, and two friends — Ronald Chernin, 66, and Paul Petrello, 53 — on parallel criminal charges of securities fraud.
“The defendants and their associates were entrusted with confidential, nonpublic information about companies and time and time again, they allegedly violated that trust by illegally trading the companies’ stock for substantial profits,” New Jersey U.S. Attorney Paul J. Fishman said in a news release.
“They allegedly rigged the game so they would always win, and their profits came at the expense of legitimate investors, who were not privy to this inside information,” he added.
The SEC said Fishoff used his Featherwood company of Westlake Village, Calif., as his principal vehicle to illegally trade in at least 15 stocks.
As part of the alleged scheme, the SEC said, he or one of the other defendants learned of pending secondary offerings from banks that had brought them “over the wall” — that is, provided them with confidential information about the offering on the condition that they not trade the issuer’s securities or disclose the confidential information to anyone else before the offering was publicly announced.
The defendants “violated the [confidentiality] agreements and tipped each other about the upcoming offerings expected to inherently depress the price of the issuer’s stock,” the SEC alleged. “The tippees then shorted the stock before an offering was publicly announced and assured themselves profits on the short sales after the stock price dropped.”
According to the complaint, the defendants also made another $1.2 million by unlawfully trading in advance of the January 2014 announcement of a lucrative licensing agreement between two pharmaceutical companies, Sangamo BioSciences and Biogen Idec.