SEC Charges 3 in Alleged Insider Trading Scheme Related to Aphria Takeover and Other Deals

He allegedly traded in non-public information obtained from a cousin who sat on the board of directors of Green Growth Brands, which attempted to buy Aphria in 2019

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The United States Securities and Exchange Commission has indicted three Florida men in a multi-million dollar insider trading scheme relating to three transactions, including a proposed buyout of Canadian cannabis company Aphria Inc.

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In a complaint filed Thursday, the US regulator alleged that David Schottenstein, 38, of Surfside, Fla., Exchanged important, non-public information obtained from a cousin who served on the board of directors of Green Growth Brands, the company that attempted to buy Aphria in 2019. This transaction was unsuccessful.

In a separate filing, the US Department of Justice said Schottenstein had agreed to plead guilty to a single count of conspiracy to commit securities fraud in connection with trading, which the SEC alleges ‘he made US $ 600,000 in “illicit earnings”.

In its complaint, the SEC alleged that Schottenstein, who founded a designer sunglasses company in 2016 and whose family has long-standing relationships in the US retail industry, also told two close friends. , Kris Bortnovsky and Ryan Shapiro, inside information he got before the public did. advertisement.

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They allegedly carried out transactions before the profits reported by retailer DSW in the summer of 2017; an announced merger between Rite Aid and Albertsons Companies Inc. in 2018, which was subsequently canceled; and the hostile offer on Aphria.

The US regulator alleged that Bortnovsky, who managed investment vehicles in which Schottenstein had invested, carried out illicit transactions for his investment management firm Sakal Capital Management, LLC and one of its hedge funds, Sakal US Fund, LLC, in addition to trading individual brokerage accounts. belonging to himself and to another person.

According to the SEC complaint, Bortnovsky used these various accounts to trade ahead of the three announcements for total profits of over US $ 4 million. Shapiro is said to have traded Rite Aid and Aphria and raked in total profits of around US $ 121,000.

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None of the claims have been proven.

According to the document, David Schottenstein’s cousin, who is only referred to as Insider 1 in the SEC complaint, served on the boards of Green Growth Brands and DSW. The Schottenstein family owned a private business that was involved in the Rite Aid transaction, according to the filing, which refers to the cousin’s father as Insider 2.

While no relatives are named, their descriptions match Joey and Jay Schottenstein. A spokesperson for the two men told Reuters they were “shocked and saddened” to learn of the alleged illegal behavior.

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Authorities have not alleged any wrongdoing on the part of the companies whose shares were traded.

Green Growth Brands made a hostile offer for Leamington, Ontario-based Aphria in early 2019, following a report by a short seller in December that Aphria overpaid for international assets under of a “ploy” for the benefit of company insiders. Aphria shares fell 30% following the short report, and Aphria rejected the takeover offer, suggesting it was “significantly” undervaluing the company.

Aphria eventually merged with Tilray, another Canadian cannabis company, in the spring of 2021, and now operates under the latter’s name.

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• Email: bshecter@nationalpost.com | Twitter:

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