Cross-County Insider Trading Scheme
Florida Man Admits Making Over $1.2 Million As Part Of Three Year, Cross-County Insider Trading Scheme
TRENTON, N.J. – A professional day trader today admitted personally making more than $1.2 million in illicit profits by repeatedly trading on inside information divulged to him in violation of confidentiality agreements, U.S. Attorney Paul J. Fishman announced.
Paul Petrello, 54, of Boca Raton, Florida, pleaded guilty before U.S. District Judge Michael A. Shipp in Trenton federal court to an information charging him with one count of conspiracy to commit securities fraud and one count of securities fraud.
According to documents filed in this case and statements made in court:
For each of these offerings, Fishoff or one or more of the day traders that he employed —including his friend, Ronald Chernin, 67, of Oak Park, California, and his brother-in-law, Steven Costantin, 55, of Farmingdale, New Jersey — entered into confidentiality or “wall-crossing” agreements as representatives of Fishoff’s trading entities, whereby they agreed not to disclose or trade on inside information concerning the offerings and were “brought over the wall” for the narrow purpose of determining whether to purchase the offered securities.
In breach of the wall-crossing agreements, Fishoff tipped Petrello about the confidentially marketed offerings by advising Petrello of the stock trading symbols of the companies, as well as the timing and sometimes the pricing of the upcoming offerings. Fishoff generally provided Petrullo with the inside information in code: first, text messaging Petrello only the first two letters of the company’s stock trading symbol; and second, calling Petrello and telling him the last two letters of the symbol.
In addition, Fishoff also directed Petrello to pass inside information related to the stock offerings to an individual identified as “CC-1” in the information. At other times, Fishoff directly tipped CC-1 about an upcoming offering.
At Fishoff’s recommendation, Petrello short sold the stock of the public companies in anticipation of a drop in the stocks’ price when the stock offerings were disclosed to the public. Petrello and his conspirators traded through the accounts of their respective trading entities or through related accounts that they controlled.
By trading on the nonpublic information, Petrello and his conspirators gained more than $3.9 million in profits over the course of the three-year scheme, with Petrello personally making more than $1.2 million. Petrello split his profits with Fishoff, generally on a 50-50 basis, as compensation for the inside information that Fishoff provided.
The conspiracy count to which Petrello pleaded guilty carries a maximum potential penalty of five years in prison and a $250,000 fine. The securities fraud count carries a maximum potential penalty of 20 years in prison and a $5 million fine. Sentencing is scheduled for May 25, 2016.
Fishoff has been indicted, and Chernin and Costantin have been charged by complaint for their own involvement in the insider trading scheme. The charges and allegations contained in the indictment and complaint are merely accusations, and defendants are presumed innocent unless and until proven guilty.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Acting Special Agent in Charge Andrew Campi in Newark, for the investigation leading to today’s guilty plea. He also thanked the U.S. Securities and Exchange Commission’s New York Regional Office under the direction of Sanjay Wadhwa.
The government is represented by Assistant U.S. Attorney’s Shirley U. Emehelu and Nicholas P. Grippo of the Criminal Division of the U.S. Attorney’s Office in Newark, as well as Acting Chief Barbara Ward and Assistant U.S. Attorney Sarah Devlin of the Office’s Asset Forfeiture and Money Laundering Unit.
Today’s plea is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
Defense counsel: David M. Rosenfield Esq. and Howard R. Elisofon Esq., New York
