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

Damien Williams, United States Attorney for the Southern District of New York, and Michael J. Driscoll, Assistant Director of the New York Office of the Federal Bureau of Investigation (“FBI”) announced today that DAVID STONE has pleaded guilty to one count of securities fraud in connection with an insider trading scheme. STONE was arrested in May of this year and pleaded guilty this morning before US District Judge Mary Kay Vyskocil.

US Attorney Damien Williams said: “David Stone admitted in court today that he illegally accessed pre-publication stock picks from an investment advice service so he could beat the markets and generate millions in trading profits for himself. Today’s request reflects the Office’s commitment to ensuring the integrity and fairness of our markets. David Stone is now awaiting sentencing for his crime and must also forfeit his ill-gotten gains and make restitution.

According to the allegations in the Information and the statements made in the public court proceedings:

From 2020 until at least March 2022, DAVID STONE uses market-moving stock recommendations made by an investment recommendation service (“Advisor-1”) before those recommendations are released to paying 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 announced to paying subscribers of Advisor-1.

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

In addition to its own trading, STONE provides trading advice to at least one other individual (“Tipee-1”). Between or about January 2021 through and including March 2022, on approximately 45 different days, STONE sent emails to Tipee-1 providing stock names and/or ticker symbols prior to Advisor-1’s recommendation communications for shares to its paying subscribers. A brokerage account linked to Tipee-1 traded before Advisor-1’s recommendations on more than a dozen occasions. As a result of this trade, Tipee-1 earned more than approximately $2.7 million.

Before providing advice to Tipee-1, STONE outlined the conditions 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 recommended Tipee-1 “[d]o other deals than just what I’m telling you,” explaining, “[i]f all your trades are magnified 5x and you never make a loss [sic] trading 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 prescribed by Congress and is provided here for informational purposes only, as each defendant’s sentence will be determined by the judge. Stone is scheduled to be sentenced by Judge Viscocil 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 had filed a parallel civil suit.

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

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