The US District Court for the Southern District of New York recently entered a final judgment against Idaho resident David Lee Stone to resolve charges filed by the Securities and Exchange Commission for his role in an insider trading scheme. Under the scheme, Stone illegally purchased securities based on fraudulently-obtained pre-released stock tips from The Motley Fool LLC, an investment-advice company, before the tips could be published to the company’s subscribers.
According to the consent judgment, Stone admitted to deceptively and fraudulently obtaining the pre-released stock tips by accessing Motley Fool’s website using log-in credentials that did not belong to him and that he was not authorized to use. Beginning in approximately November 2020, Stone obtained the stock tips from Motley Fool’s website, purchased the recommended securities, and then sold the stocks shortly after the tips were published to subscribers, generating illegal profits when the stock prices would rise after they appeared in the Motley Fool publication. In January 2021, Stone allegedly began sharing the confidential information with his friend John Robson, who also engaged in the scheme. As part of his settlement, Stone admitted that he placed 50 successful trades by engaging in the scheme. According to the SEC, Stone realized approximately $3.9 million from his trades and purchased securities on behalf of his father and wife, who were listed as relief defendants for allegedly earning $2.5 million from the illegal trades. The SEC also accused Robson of generating approximately $3 million in illegal gains and placing trades on behalf of two close friends, who were also listed as relief defendants for allegedly earning $3.2 million from the scheme.
As part of the SEC settlement, Stone consented to the entry of judgment against him and is permanently enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Stone also agreed to pay disgorgement, prejudgment interest, and a civil penalty to be determined by the court at a later date.
The Department of Justice also charged Stone with one count of securities fraud for his involvement in the insider trading scheme, and, on September 23, 2022, Stone pleaded guilty to the charge against him. He is currently scheduled to be sentenced on February 14, 2023. Criminal charges have not been filed against Robson, but the SEC’s case against Robson and the relief defendants is ongoing.