By Nate Raymond
BOSTON (Reuters) -A former Miami-based hedge fund manager was arrested on Friday after federal prosecutors revived an insider trading case they had been forced to drop in 2022 after a key witness withdrew from an agreement to testify against him.
Federal prosecutors in Boston said Kris Bortnovsky, co-founder of Sakal Capital Management, earned over $4 million by placing illegal trades based on tips he received from among others a friend whose family held investments and leadership roles in retailers like DSW owner Designer Brands.
That friend was David Schottenstein, a Florida entrepreneur who was sentenced to a year in prison in 2023 after admitting to his role in an insider trading scheme that had led to earlier charges against Bortnovsky and another man.
Schottenstein had originally agreed to testify against them but subsequently backed out of his cooperation deal with authorities. Prosecutors then dropped their case against Bortnovsky and the other man in December 2022.
Prosecutors reserved the right to bring the case again, saying their investigation was ongoing, and on Friday revealed they had obtained guilty pleas from three other individuals in recent months related to their involvement in the scheme.
Friday’s indictment charged Bortnovsky not just with securities fraud but also obstruction of justice, alleging he intimidated Schottenstein, identified in the indictment as “CC-1,” in March 2022.
The indictment alleged Bortnovsky while on bail followed Schottenstein into an orthodox synagogue he attended and, while wearing dark sunglasses, stared at Schottenstein with the intent to influence his testimony.
Lawyers for Bortnovsky and Schottenstein did not respond to requests for comment.
Prosecutors said that from 2017 to 2019, Bortnovsky conspired with Schottenstein and others to trade on non-public information regarding the earnings results and merger-and-acquisition activity of companies including DSW, now called Designer Brands; Aphria Inc; and Rite Aid.
Prosecutors said Schottenstein passed along information he learned from a relative on the boards of DSW and Green Growth Brands, which pursued a failed bid to acquire Aphria. A Schottenstein family business was involved in a failed merger involving Rite Aid.
The indictment said Bortnovsky also traded on information he received from another person about a private equity firm’s potential acquisition of home décor retail chain At Home Group in 2017 and 2019 and the termination of those deal talks.
(Reporting by Nate Raymond in Boston; Editing by David Gregorio)
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