It is the 3rd of April 2020

Hedge Fund Wannabes Busted For Trading On Amazon Inside Information

A former Amazon employee has pled guilty to charges that he leaked confidential information about the online retail giant's earnings to his former fraternity brother in a not so elaborate scheme so they could "turn an illegal profit" the SEC reported. Brett Kennedy, 26, was charged in a civil suit brought by the SEC which also named his college frat buddy, Maziar Rezakhani, 28, and his trading partner, Sam Sadeghi, 28, while US prosecutors in Seattle also filed criminal charges against Kennedy.

According to the case, Kennedy - who had been hired in 2013 as a financial analyst - accessed Amazon's 2015 first quarter earnings information without authorization and shared it with Rezakhani, who then bought $1.7 million worth of Amazon stock and sold it after the positive data sent AMZN shares higher, generating $116,000 in profits. Kennedy and Rezakhani have been friends since approximately 2009 and were members of the same college fraternity; Rezakhani paid Kennedy $10,000 in cash for the tip and also shared the trading profits with his friend, Sam Sadeghi, who was advising him on his brokerage account trades.

Here's the best part: the SEC alleges that Rezakhani and Sadeghi aimed to establish a successful track record with the trading in Rezakhani’s brokerage account and together open a hedge fund in New York that would accept investments from others. They had the right idea of how to generate the returns, it was their execution that needed some polishing, especially since Rezakhani boasted on at least two trading-related internet communication platforms in the days leading up to Amazon’s earnings announcement that he was predicting first quarter revenue of $22.7 billion and earnings per share of -$0.12, writing that the “numbers are so obvious” that a “5 year old can guess what they will do.” Well, yes, if the 5 year old was armed with insider information. 

Needless to say, the whole amateur operation was promptly busted, especially since as the SEC adds, even before today's charge, Maziar Rezakhani - the mastermind trader - was already incarcerated at a federal correctional facility, serving a five-year sentence following his July 2016 guilty plea to mail fraud, bank fraud, and tax fraud charges in a separate criminal matter in which he planned to defraud a small bank, tech giant Apple and various shippers. He is about to have a very unpleasant visit in prison from the SEC, demanding that he repays the ill-gotten $116,000.

Jina L. Choi, Director of the SEC’s San Francisco Regional Office, said in a statement, "as alleged in our complaint, Rezakhani boasted on social media that he could accurately predict Amazon’s financial performance.  But he failed to predict that we would catch him and his accomplices in their illegal scheme."

According to the SEC complaint, Sadeghi and Kennedy agreed to settlements that are subject to court approval.  Without admitting or denying the allegations, Sadeghi agreed to pay disgorgement of $11,599.74 plus $1,035.39 in interest and an $11,599.74 penalty for a total of $24,214.87.  Kennedy agreed to pay disgorgement of $10,000 plus interest of $875.36.  In a parallel action, the U.S. Attorney’s Office for the Western District of Washington today announced criminal charges against Kennedy.

Chris Black, the lawyer for Kennedy, issued the following statement after the news:

“Mr. Kennedy was little more than a kid (24) at the time of the incident, in 2015. He exercised very poor judgment in this case but it was a one-time incident; he has never engaged in any other remotely similar conduct. Since the time Mr. Kennedy was initially contacted by the FBI earlier this year, he has been completely cooperative with the federal prosecutor and the SEC. He has taken responsibility for his actions and looks forward to putting this chapter in his life behind him.”

Unfortunately for Kennedy, unlike Steve Cohen and his remarkable comeback from criminal investor purgatory, there will be no "2 and 20" in the 26-year-old's future.

The quite entertaining SEC complaint is below (link).

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