Member of Prominent Schottenstein Family to Plead Guilty in Insider-Trading Case

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Prosecutors say illegal suggestions from the board of Designer Brands and Albertsons generated at least $4 million in business profits for David Schottenstein and two friends.

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The Schottenstein family, based in Columbus, Ohio, manages or founded furniture and clothing companies, including American Eagle Outfitters Inc.,

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According to securities filings and the companies’ websites, Designer Brands Inc. and Value City Furniture. Jay Schottenstein is the chief executive officer of American Eagle, serves as executive chairman of Designer Brands, which owns the designer shoe warehouse chain, and sits on Albertsons’ board of directors.

According to the Securities and Exchange Commission, David Schottenstein, 38, who was close friends with his second cousin, filed a separate civil fraud lawsuit against the three traders. According to the SEC, David Schottenstein bought 66,000 shares of Designer Brands in August 2017 before the company hit expectations, after the two vacationed together and spoke on the phone several times.

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Court records do not name David Schötenstein’s second cousin, who was not charged, but he is Joseph Schötenstein, according to People.

Joseph Schottenstein was also aware of grocery retailer Albertsons’ 2018 merger plan with Rite Aid Corp because his father served on Albertson’s board, according to court filings. The cousin shared the undisclosed merger plan with David Schottenstein, who prosecutors say traded on information and tipped two of his friends.

Traders bought shares of Rite Aid, whose share price rose after the deal went public in February 2018, as well as other securities that would pay off when the merger went public, according to the SEC.

According to the court notice, David Schottenstein is to plead guilty to conspiracy to commit securities fraud at a court hearing on February 1. He faces a maximum sentence of 20 years in prison, as well as financial penalties of at least $250,000 and the forfeiture of $634,000 in business profits.

According to the company’s website, David Schottenstein co-founded the sunglasses company Privé Revox with Mr. Fox and other celebrities.

“I take full and sole responsibility for my conduct and deeply regret my actions,” David Schottenstein said in a statement provided by his lawyers. “I apologize to my family, friends and coworkers.”

A spokesman for Jay and Joseph Schottenstein said they were “shocked and saddened to learn of the illegal conduct and violations of their beliefs last month.”

Two friends of David Schottenstein, hedge-fund manager Chris Bortnowski and fintech entrepreneur Ryan Shapiro, were indicted Thursday in Boston and charged with securities fraud and conspiracy.

Bortnowski and Shapiro were arrested in Miami last month, but the criminal complaint against them was closed until Thursday, when a federal grand jury in Boston dropped the indictment against them.

Spokesmen for Designer Brands and Albertsons did not return messages seeking comment.

Mr Bortnowski’s lawyer, James Frocaro, said the hedge-fund manager is innocent and plans to plead not guilty. Martin Weinberg, an attorney for Mr Shapiro, said his client also denies the allegations and will “defend himself firmly and resolutely in future trials.”

According to court records, Mr. Bortnowski, 40, managed a small hedge fund in which David Schottenstein was an investor. According to the SEC, Mr. Bortnowski earned about $260,000 before the announcements from Designer Brands and Albertsons. According to the SEC, his hedge fund and related accounts made approximately $3.4 million.

According to the SEC, Mr. Bortnowski and David Schottenstein communicated frequently about their trades. In a text message cited by the SEC in his federal court complaint, David Schottenstein told Mr. Bortnowski: “You never lose because of my tips … never … not once.”

Write Dave Michaels at [email protected]

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