Risk & Compliance

Three Charged in $4.7M Insider Trading Case

The SEC says David Schottenstein and two of his close friends traded in advance of announcements involving companies with which his family was asso...
Matthew HellerJanuary 7, 2022

This story has been corrected to clarify the relationship of David Shottenstein to board members of DSW.

The founder of designer sunglasses company Prive Revaux has been charged with using inside information to trade in advance of market-moving announcements involving companies with which his family was associated.

According to the U.S. Securities and Exchange Commission, David Schottenstein was part of an insider-trading ring that made a total of about $4.7 million in illicit profits by trading on information he obtained from a cousin.

The SEC said Schottenstein passed the tips on to two of his close friends — hedge fund manager Kris Bortnovsky and entrepreneur Ryan Shapiro. All three and Bortnovsky’s Sakai Capital Management firm were named as defendants in a civil complaint filed by the commission on Thursday.

In a parallel criminal case, the U.S. Attorney’s Office in Boston charged Schottenstein, Bortnovsky, and Shapiro with securities fraud. Schottenstein has agreed to plead guilty.

“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,” Joseph Sansone, Chief of the SEC enforcement division’s market abuse unit, said in a news release.

According to the government, the three traders’ first illegal transaction involved shoe retailer DSW, now known as Designer Brands.

David Schottenstein’s second cousin is reportedly Joey Schottenstein, who has served as a DSW director since 2012. Joey’s father, Jay Schottenstein, is DSW’s executive chairman. Neither was identified by name in the SEC complaint nor accused of any wrongdoing.

In August 2017, ahead of DSW’s public announcement of its earnings, “Schottenstein solicited from [his second cousin] that DSW was doing well financially, and Schottenstein traded on that information,” the SEC said.

Other information that Schottenstein learned from his cousin, the SEC alleged, enabled him and his co-defendants to trade in advance of the February 2018 announcement of a merger agreement between Rite Aid and Albertsons and the announcement in December 2018 of a proposed takeover of Aphria by cannabis products company Green Growth Brands.

Joey Schottenstein sat on the GGB board and his father has served as an Albertsons director since 2006.

The SEC said David Schottenstein made more than $600,000 in illicit profits, Bortnovsky and Sakai made more than $4 million, and Shapiro reaped $121,000.