SEC Files Insider Trading Charges Involving Secondary Stock Offerings

The Securities and Exchange Commission is filing insider trading charges against four persons accused of stealing confidential data from investment banks and public company clients so they could trade prior to secondary stock offerings. The four of them allegedly made over $4.4 million in illegal trading profits. Some 15 stocks were reportedly involved. The insider trading scam purportedly went on for three years, from 6/10 to 7/13.

According to the regulator, Steven Fishoff, a former day trader, conspired with his brother-in-law Steven Costantin and friends Ronald Chernin and Paul Petrello. The four of them pretended to be portfolio managers and they allegedly persuaded investment bankers to share confidential information about secondary offerings that were going to take place. Essentially, after agreeing not to tell anyone about the offering or trade in the securities, the defendants were made privy to private data.

The defendants allegedly broke their promises not to tell others about the information, tipping one another with their insider knowledge so they could lower the issuer’s stock price. They would short the stock before the offering was made public. This allowed them to earn short sale profits after the stock price had plunged.

The men also are accused of using confidential information they had about secret talks taking place between pharmaceutical companies Biogen Idec Inc. and Sangamo BioSciences Inc. They purportedly purchased stock before a positive corporate news announcement was made public.

Fishoff allegedly organized the insider trading scam. He is the sole owner and president of Featherwood Capital Inc., which is a trading entity. Petrello is also an ex-day trader.

The SEC charged the four men and seven entities that they controlled with illegal insider trading, violating provisions of the Securities Exchange Act of 1933, the Securities Exchange Act 1934, and Rule 105 of Regulation M of the Exchange Act related to short sales made prior to public securities offerings. Meantime, a parallel criminal case was filed against the four men, who were arrested.

New Jersey U.S. Attorney Paul Fishman describes their alleged wrongdoing as a multi-year insider trading scam. Each of the defendants is charged with to conspiracy to commit securities fraud. Fishoff is also charged with multiple securities fraud counts. Constantin, Petrello and Chernin face lesser counts.

The conspiracy charge comes with a five-year maximum prison term and either a $250K fine or two times times the aggregate gain of the defendants or loss of the victims. Each charge for securities fraud has a 20-year maximum prison sentence plus a fine of $5M.

Our securities law firm is here to help investors of securities fraud recover their losses. Even when the government has brought a civil and/or criminal case against wrongdoers, this doesn’t mean that investors who were harmed will get all or even any of their money back. That’s why you need experienced legal representation advocating on your behalf and fighting for your lost funds.

Four People Arrested and Charged in Cross-Country Insider Trading Scheme, FBI, June 3, 2015

Read the SEC Complaint (PDF)