The owner and operator of a stock trading operation and
three of his associates were arrested today on charges arising from their
alleged participation in a multi-year insider trading scheme that netted more
than $3.2 million in illicit profits, announced today by U.S. Attorney Paul J.
Fishman for the District of New Jersey.
Steven Fishoff, 58, of Westlake Village, California, Ronald
Chernin, 66, of Oak Park, California, Steven Costantin aka Steven Constantin,
54, of Farmingdale, New Jersey, and Paul Petrello, 53, of Boca Raton, Florida,
are each charged by complaint with one count of conspiracy to commit securities
fraud. Fishoff is charged with four
substantive counts of securities fraud, Chernin and Petrello are each charged
with two counts of securities fraud and Costantin is charged with one count of
securities fraud.
The defendants were arrested by FBI agents this morning at
their respective residences. Costantin
is scheduled to appear this afternoon before U.S. Magistrate Judge Joseph A.
Dickson in Newark, New Jersey, federal court.
Fishoff is scheduled to appear before U.S. Magistrate Judge Kenly Kiya
Kato in Riverside, California, federal court, Chernin is scheduled to appear
before U.S. Magistrate Judge Carla Woehrle in Los Angeles, Californina, federal
court, and Petrello is expected to appear before U.S. Magistrate Judge Dave Lee
Brannon in West Palm Beach, Florida, federal court.
“The defendants and their associates were entrusted with
confidential, nonpublic information about companies and time and time again,
they allegedly violated that trust by illegally trading the companies’ stock
for substantial profits,” said U.S. Attorney Fishman. “They allegedly rigged the game so they would
always win, and their profits came at the expense of legitimate investors, who
were not privy to this inside information.”
“Insider trading is an investigative priority of the FBI,”
said Special Agent in Charge Richard M. Frankel for the FBI in Newark, New
Jersey. “The FBI is committed to
stopping insider trading and will hold those who perpetrate these schemes
accountable because their illegal activities undermine the integrity of the
U.S. financial markets and weaken investor confidence.”
“We allege an insider trading scheme based on a
short-selling business model designed to systematically profit on confidential
information obtained under false pretenses,” said Senior Associate Director
Sanjay Wadhwa for Enforcement in the SEC’s Regional Office in New York. “But the defendants’ short selling proved to
be short-sighted as they overlooked the fact that their trading patterns would
be detected and they would be caught by law enforcement.”
According to the complaint unsealed today, Fishoff, Chernin,
Costantin, Petrello and others, acting individually and through their
associated trading entities, engaged in an insider trading scheme in which they
netted more than $3.2 million in illicit profits over three years by executing
illegal trades through trading entities that they controlled.
Fishoff is the president and sole owner of Featherwood
Capital Inc. (Featherwood), a trading entity that he operates out of his
home. Featherwood maintained numerous
stock trading accounts in its own name and in various additional names under
which Featherwood did business (DBAs), including Gold Coast Total Return Inc.
(Gold Coast), Seaside Capital Inc. (Seaside) and Data Complete Inc. (Data
Complete).
Chernin, an attorney who was disbarred in California for
misappropriation of client assets, is a friend and longtime business associate
of Fishoff. Corporate documents list
Chernin as the president of Gold Coast and Fishoff as an officer. Chernin is president of the trading entity
Cedar Lane Enterprises Inc. (Cedar Lane) and an officer of Data Complete.
Costantin, a former pipefitter by trade, is Fishoff’s
brother-in-law and a friend and business associate of Chernin. Corporate documents list Costanstin as
president of Seaside. In brokerage
account documents, Fishoff identifies himself as Seaside’s owner. Costanstin is also the vice president and
secretary of Cedar Lane.
Petrello is the president and owner of two trading entities,
Brielle Properties Inc. and Oceanview Property Management LLC and a friend and
longtime business associate of Fishoff.
On numerous occasions, the conspirators obtained material,
nonpublic information related to publicly traded companies and traded on that
information before it became public.
Between June 2010 and July 2013, Fishoff, Chernin, Costantin and a
business associate referred to in the complaint as “Trader A” expressed
interest in participating in at least 14 stock offerings by publicly traded
companies. Before providing these
individuals with confidential information concerning the companies or the terms
of the proposed sales, the investment bankers first required that Fishoff,
Chernin, Costantin, Trader A and their associated trading entities, agree to be
“brought over the wall,” or “wall-crossed,” standard industry terms which meant
that they were required to keep the information disclosed to them confidential
and could not buy or sell the stock based on the information.
Fishoff, Chernin, Costantin and Trader A agreed to these
disclosure and trading restrictions and then flagrantly breached the
agreements. In instances where Fishoff
was not personally wall-crossed in an offering, Chernin and Costantin tipped
Fishoff telephonically or by email about the offering prior to the public
announcement. Even where Fishoff ostensibly
was a party to the confidentiality agreement, through his affiliation with the
wall-crossed trading entity, Fishoff himself breached the agreement by trading
on the confidential information and by providing the information to Petrello so
that Petrello could engage in parallel trading.
There were also instances where Chernin and Costantin violated the terms
of the confidentiality agreements by trading themselves before the
offering. The conspirators traded
through the accounts of the trading entities or through related accounts that
they controlled. The conspirators shared
the proceeds of the insider trading scheme, with Fishoff wiring money to
Chernin and Costantin for their services and Fishoff receiving compensation
from Petrello for the offering-related tips that Fishoff provided to him.
The conspiracy count with which each defendant is charged
carries a maximum potential penalty of five years in prison and a $250,000
fine, or twice the aggregate loss to victims or gain to the defendants. Each of the substantive securities fraud
charges carry a maximum penalty of 20 years in prison and a $5 million fine.
U.S. Attorney Fishman credited special agents of the FBI,
under the direction of Special Agent in Charge Frankel, for the investigation
leading to today’s arrests and complaint.
He also thanked the U.S. Securities and Exchange Commission’s New York
Regional Office under the direction of Andrew Calamari. He also thanked special agents of the FBI,
Los Angeles (Ventura Resident Agency and Riverside Resident Agency) and FBI,
Miami (West Palm Beach Resident Agency) for their assistance.
The government is represented by Assistant U.S. Attorneys
Shirley U. Emehelu of the Economic Crimes Unit of the U.S. Attorney’s Office in
Newark, New Jersey and Acting Chief Barbara Ward for the of the Office’s Asset
Forfeiture and Money Laundering Unit.
The charges and allegations contained in the complaint are
merely accusations and the defendants are presumed innocent unless and until
proven guilty.
No comments:
Post a Comment