SEC goes after traders who exploited Motley Fool stock recommendations
The Securities and Exchange Commission (SEC) has filed a complaint against traders who exploited stock recommendations generated by The Motley Fool, LLC.
According to the SEC’s complaint submitted at the New York Southern District Court, David Lee Stone and John D. Robson have been engaged in a fraudulent and deceptive trading scheme that exploited soon-to-be announced stock recommendations by Motley Fool and traded on those recommendations to generate significant profits.
Since at least November 2020, the scheme has generated more than $12 million in illicit profits trading ahead of approximately 60 stock recommendations.
David Stone used deceptive means to obtain unauthorized, pre-release access to stock picks by at least two Motley Fool services, which typically release the picks to their subscribers on Thursdays. Beginning in January 2021, David Stone began sharing those picks with Robson, by email, typically a day or two prior to their release.
Prior to Motley Fool’s announcement of its picks, David Stone and Robson purchased aggressive positions in the selected issuer’s securities, including certain types of options contracts that were profitable only if the stock price increased within a week. The prices of the stocks would typically rise immediately after Motley Fool announced the pick. David Stone and Robson would then cash out of their positions, often within minutes after the Motley Fool announcement.
Since January 2021, when Robson joined the scheme, David Stone and Robson traded ahead of the Motley Fool’s Thursday announcements nearly every week. David Stone has made illicit profits of more than $3.9 million trading in this fashion, and Robson has made illicit profits of more than $3 million.
The SEC alleges that, by engaging in this conduct, David Stone and Robson violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. Defendant Robson also aided and abetted David Stone’s violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder, and directly or indirectly, through or by means of Defendant David Stone, violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.
Relief Defendants, who are family members or close contacts of David Stone and Robson, also benefitted significantly from the illicit trading scheme. Accounts in the names of Relief Defendants Harold J. Stone and Gwendolyn Stone, David Stone’s father and wife, have made profits of nearly $2.5 million.
Accounts in the names of Relief Defendants Brett R. Adams and Justin Blakesley, who are close contacts of Robson, have made profits of nearly $3.2 million. Relief Defendants have no legitimate claim to these funds, and it would not be just, equitable, or conscionable for them to retain those funds and assets, the SEC explains.
The SEC says it brought this action pursuant to the authority conferred upon it by Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. The SEC seeks an emergency, temporary, and preliminary order against Defendants and Relief Defendants freezing assets and ordering other ancillary relief. The SEC also seeks permanent injunctions against Defendants, enjoining them from engaging in the transactions, acts, practices, and courses of business alleged in this Complaint, disgorgement of all ill-gotten gains from the unlawful activity set forth in this Complaint, together with prejudgment interest, and civil penalties.
The Commission further seeks disgorgement of ill-gotten gains, together with prejudgment interest, from Relief Defendants.