By Nate Raymond
BOSTON (Reuters) – A member of a wealthy family who has held executive and investment roles at retailers like the owner of DSW Designer Brands (NYSE:) Inc and American Eagle Outfitters (NYSE:) Inc was sentenced to one year in prison on Tuesday for insider trading.
Prosecutors had urged U.S. District Judge Douglas Woodlock in Boston to sentence David Schottenstein to nearly four years in prison, saying he and two friends made $4.5million exchanging inside information he gleaned from of members of his family.
Schottenstein initially agreed to cooperate and testify against these friends, Kris Bortnovsky and Ryan Shapiro. But he backed out of his co-op deal in November, leading prosecutors to drop the charges against them.
His lawyers argued he had no choice but to stop cooperating after anxiety made him suicidal and argued that home confinement would be punishment enough after he pleaded guilty last year for conspiracy to commit securities fraud.
Prosecutors said Schottenstein made more than $600,000 in trades in 2017 and 2018 on information he gleaned from a relative regarding merger and earnings announcements involving DSW, now called Designer Brands; Aphria (NASDAQ:) Inc; and Rite Aid (NYSE:) Corp.
Prosecutors said he traded before DSW 2017 results were announced; on news of a 2018 merger deal between Albertsons and Rite Aid which they later terminated; and a 2018 application by Green Growth Marks (OTC:) for Aphria Inc, which failed.
He learned this information from a first cousin, Joey Schottenstein, who served on the board of Designer Brands and Green Growth Brands. Her father is Jay Schottenstein, executive chairman of Designer Brands and general manager of American Eagle.
Jay and Joey Schottenstein have previously, through a spokesperson, expressed shock at the “unlawful conduct and violation of their confidences”.
Prosecutors said David Schottenstein also tipped Bortnovsky, co-founder of hedge fund Sakal Capital Management, and Shapiro, who founded inmate money transfer service provider JPay and served on the board administration of a Florida synagogue with Schottenstein.
While prosecutors dropped criminal charges against Bortnovsky and Shapiro, a civil case filed by the U.S. Securities and Exchange Commission is still pending. They deny wrongdoing.