By Nate Raymond
BOSTON (Reuters) – A member of a wealthy family that has held investments and leadership roles in retailers like DSW owner Designer Brands (NYSE:) Inc and American Eagle Outfitters (NYSE:) Inc was sentenced on Tuesday to a year in prison 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 $4.5 million trading on inside information he gleaned from members of his family.
Schottenstein originally agreed to cooperate and testify against those friends, Kris Bortnovsky and Ryan Shapiro. But he backed out of his cooperation deal in November, leading prosecutors to drop the charges against them.
His lawyers contended he had no choice but to stop cooperating after anxiety made him suicidal and argued home confinement would be sufficient punishment after he pleaded guilty last year to conspiring to commit securities fraud.
Prosecutors said Schottenstein made more than $600,000 trading in 2017 and 2018 on information he gleaned from a relative about merger and earnings announcements involving DSW, now called Designer Brands; Aphria (NASDAQ:) Inc; and Rite Aid (NYSE:) Corp.
Prosecutors said he traded ahead of a 2017 DSW earnings announcement; on news about a 2018 merger agreement between Albertsons and Rite Aid that they later terminated; and a 2018 bid by Green Growth Brands (OTC:) for Aphria Inc, which failed.
He learned that information from a second cousin, Joey Schottenstein, who sat on the board of Designer Brands and Green Growth Brands. His father is Jay Schottenstein, Designer Brands’ executive chairman and American Eagle’s chief executive.
Jay and Joey Schottenstein have previously through a spokesperson expressed shock about “the illegal conduct and breach of their confidences.”
Prosecutors said David Schottenstein also tipped Bortnovsky, the co-founder of hedge fund Sakal Capital Management, and Shapiro, who founded inmate money transfer service provider JPay and sat on the board of a Florida synagogue with Schottenstein.
While prosecutors have dropped criminal charges against Bortnovsky and Shapiro, a civil case by the U.S. Securities and Exchange Commission remains pending. They deny wrongdoing.