SEC Charges NFL Player and Former Investment Banker With Insider Trading

The Securities and Exchange Commission today charged a professional football player and a former investment banker with insider trading in advance of corporate acquisitions facilitated through coded text messages and FaceTime conversations.

The SEC alleges that after meeting at a party, Mychal Kendricks began receiving illegal tips from Damilare Sonoiki, an analyst at an investment bank who had access to confidential, nonpublic information about upcoming corporate mergers. Kendricks allegedly made $1.2 million in illegal profits by purchasing securities in companies that were soon to be acquired and then selling his positions after the deals were publicly announced, in one instance generating a nearly 400 percent return on his investment in just two weeks.

According to the SEC’s complaint, Kendricks rewarded Sonoiki for his tips and other assistance, which included setting up an online brokerage account that both men could access, by providing cash kickbacks, free NFL tickets, and an evening on the set of a pop star’s music video in which Kendricks made a cameo appearance.

“As alleged in our complaint, Kendricks paid cash and shared celebrity perks for illegal tips that enabled him to trade and profit on confidential information that the rest of the investing public didn’t have,” said Stephanie Avakian, Co-Director of the SEC Enforcement Division. read more »

How a Ruling on Insider Trading Could Affect the Chris Collins Case

Insider trading cases are sometimes as simple as a well-timed phone call warning an investor to bail on a stock ahead of impending bad news.

The indictment this month of Representative Chris Collins, a Republican representing a district near Buffalo, N.Y., his son Cameron Collins, and the father of Cameron Collins’s fiancée is a good reminder of that.

Mr. Collins was a director and a large shareholder of Innate Immunotherapeutics Limited, an Australian drug company. He is accused of alerting his son and Stephen Zarsky, the father of Cameron’s fiancée, to impending bad news from the company. While Mr. Collins did not sell any shares of Innate Immunotherapeutics after receiving the information, his son and Mr. Zarsky did, avoiding over $700,000 in losses. All three have pleaded not guilty.

An insider trading violation does not require the source of the information to trade on it. The law requires only that the government show the information was given to others with the intention that they trade on it and that the tipper received a benefit, which can be something as simple as cash or a gift to family or friends.

But insider trading law has followed a rather tortuous path over the past few years. Figuring out what was required to prove tipping of inside information was a challenge to prosecutors. read more »

CFTC Wins Trial against Virtual Currency Fraudster

Court Orders Defendants to Pay over $1.1 Million in Penalties and Restitution in Connection with the “Vicious Defrauding of Customers”

A New York federal court entered final judgment ordering Patrick K. McDonnell of Staten Island, New York, and CabbageTech, Corp. d/b/a Coin Drop Markets (CDM), McDonnell’s New York-based company, to pay over $1.1 million in civil monetary penalties and restitution in connection with a lawsuit brought by the Commodity Futures Trading Commission (CFTC) alleging fraud in connection with virtual currencies, including Bitcoin and Litecoin.

In an accompanying 139-page Memorandum (Decision) entered on August 23, 2018, following a four-day bench trial, Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York found that McDonnell and CDM (together, Defendants) engaged in a deceptive and fraudulent virtual currency scheme to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time expert virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction.  In fact, these misrepresentations were lies, and McDonnell simply misappropriated customer funds in what the Court found was the “vicious defrauding of customers.”

James McDonald, the CFTC’s Director of Enforcement, commented: “As the court’s judgment makes clear, the CFTC will continue to act aggressively to identify bad actors involved in virtual currencies and hold them accountable.  This case also shows the CFTC’s readiness to prove its case at trial.”

The Court’s Decision finds that from approximately January 2017 through approximately July 2017, McDonnell and CDM engaged in a deceptive and fraudulent scheme to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction. read more »