Idaho IT professional pleads guilty to misappropriating investment recommendations before publication for insider trading scheme | USAO-SDNYU

Damian Williams, U.S. Attorney for the Southern District of New York, and Michael J. Driscoll, Assistant Chief of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that DAVID STONE pleaded guilty to one count of securities fraud papers in connection with the scheme of insider trading. Stone was arrested in May of this year and pleaded guilty this morning before U.S. District Judge Mary Kay Wyskocil.

U.S. Attorney Damian Williams said: “David Stone admitted in court today that he illegally gained access to stocks before posting on an investment advisory service so he could beat the markets and make millions in trading profits for himself. Today’s appeal reflects this Office’s commitment to the integrity and honesty of our markets. David Stone now awaits sentencing for his crime and must forfeit his ill-gotten gains and make restitution.”

According to the statements in the Information and statements made during open court proceedings:

From 2020 until at least March 2022, DAVID STONE used stock market recommendations provided by an investment advisory service (“Advisor-1”) before those recommendations were published to paid subscribers. STONE, an IT professional, gained access to Advisor-1’s computer system using login credentials he obtained without authorization and used his ill-gotten access to view information related to Advisor-1’s recommendations before they were declared paid to Advisor-1 subscribers.

Advisor-1 stock recommendations usually, but not always, result in higher closing prices for the recommended stock compared to the previous day’s closing price. By trading these recommendations before they were announced, STONE was able to make significant profits unavailable to other market participants. In fact, STONE made at least $3.5 million in profits across all the brokerage accounts he traded.

In addition to his own trading, STONE provided trading advice to at least one other individual (“Tipee-1”). From or including January 2021 to March 2022, on approximately 45 separate days, STONE sent emails to Tipee-1 specifying stock names and/or ticker symbols before Advisor-1 published stock recommendations to its subscribers, who pay . The brokerage account associated with Tipee-1 traded ahead of Advisor-1’s recommendations on more than a dozen occasions. As a result of this trade, Tipee-1 made a profit of more than approximately $2.7 million.

Before tipping Tipee-1, STONE outlined the terms under which STONE would provide information to Tipee-1, including the steps they would take to conceal their scheme. Among other things, STONE admitted that “what we are doing could be considered insider trading” and, accordingly, it recommended Tipee-1 “[d]o other professions than what I tell you when explaining,[i]f all your trades grow 5x and you never lose [sic] trade, it may attract the attention of regulators.”

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DAVID STONE, 37, of Nampa, Idaho, pleaded 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 set by Congress and is provided here for informational purposes only, as any sentence for the defendant will be determined by a judge. Judge Vyskocil is scheduled to sentence Stone on February 14, 2023 at 2:00 p.m.

Mr. Williams praised the outstanding work of the FBI. Mr. Williams thanked the US Securities and Exchange Commission, which filed a parallel civil suit.

This case is being handled by the Securities and Goods Fraud Task Force. Assistant United States Attorneys Samuel P. Rothschild and Andrew Thomas are prosecuting.

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