Idaho I.T. Professional Pleads Guilty To Misappropriating Pre-Publication Investment Recommendations For Insider Trading Scheme | USAO-SDNY
Damian Williams, the United States Attorney for the Southern District of New York, and Michael J. Driscoll, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that DAVID STONE pled guilty to one count of securities fraud in connection with an insider trading scheme. STONE was arrested in May of this year and pled guilty this morning before U.S. District Judge Mary Kay Vyskocil.
U.S. Attorney Damian Williams said: “David Stone admitted in court today that he unlawfully accessed pre-publication stock picks from an investment advice service so that he could beat the markets and generate millions in trading profits for himself. Today’s plea reflects this Office’s commitment to ensuring the integrity and fairness of our markets. David Stone now awaits sentencing for his crime and must also forfeit his illicit profits and make restitution.”
According to the allegations in the Information and statements made in public court proceedings:
From 2020 up to at least March 2022, DAVID STONE exploited market-moving stock recommendations made by an investment recommendation service (“Advisor-1”) before those recommendations were released to paying subscribers. STONE, an I.T. professional, accessed Advisor-1’s computing system using log-in credentials he obtained without authorization and used his improperly obtained access to view information relating to Advisor-1’s recommendations before they were announced to Advisor-1’s paying subscribers.
Advisor-1’s stock recommendations typically, but not always, lead to higher closing prices for the recommended stock as compared to the prior day’s closing price. By trading on those recommendations before they were announced, STONE was able to obtain significant profits unavailable to other market participants. In fact, across all the brokerage accounts he traded in, STONE realized gains of at least $3.5 million.
In addition to his own trading, STONE supplied trading tips to at least one other person (“Tipee-1”). Between in or about January 2021 up to and including in or about March 2022, on approximately 45 different days, STONE sent emails to Tipee-1 providing stock names and/or ticker symbols ahead of Advisor-1 announcements of stock recommendations to its paying subscribers. A brokerage account associated with Tipee-1 traded ahead of Advisor-1 recommendations on more than a dozen occasions. As a result of that trading, Tipee-1 profited more than approximately $2.7 million.
Before providing tips to Tipee-1, STONE summarized the terms by which STONE would provide information to Tipee-1, including steps they would take to hide their scheme. Among other things, STONE acknowledged that “what we are doing could be considered insider trading,” and accordingly, he recommended that Tipee-1 “[d]o other trades besides just what I tell you,” explaining, “[i]f all your trades are up 5x and you never make a loosing [sic] trade it may call attention of regulators.”
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DAVID STONE, 37, of Nampa, Idaho, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison.
The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. STONE is scheduled to be sentenced by Judge Vyskocil on February 14, 2023 at 2:00pm.
Mr. Williams praised the outstanding work of the FBI. Mr. Williams thanked the U.S. Securities and Exchange Commission, which has filed a parallel civil action.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Samuel P. Rothschild and Andrew Thomas are in charge of the prosecution.