There is legal insider trading, where corporate insiders have windows of time buy or sell shares in their companies. And then there is illegal insider trading, whereby privileged information is used for ill-gotten gains. It is the latter case which often lands people in jail or which comes with severe fines and penalties — or all at once.

Tuesday’s public insider trading news from the U.S. Securities and Exchange Commission shows that a former employee of Amazon.com Inc. (NASDAQ: AMZN) and a friend of his were charged with insider trading. The SEC website announced insider trading charges against a former Amazon financial analyst, who allegedly leaked confidential information to his former fraternity brother ahead of a company earnings announcement so they could turn an illegal profit. According to the SEC report, the college friend and his trading partner also were charged in the SEC’s complaint.

The SEC has alleged that Brett Kennedy accessed nonpublic earnings information regarding the first quarter of 2015. It was said to have been without authorization while working at Amazon, and it was then shared with Maziar Rezakhani.  The information was illegally traded on ahead of the actual earnings results, and the illicit profits were said to be more than $116,000.

Thursday’s SEC report said:

According to the SEC’s complaint, Rezakhani paid Kennedy $10,000 in cash for the tip and also shared the trading profits with Sam Sadeghi, who was advising him on his brokerage account trades and joined Rezakhani at a meeting with Kennedy to discuss the nonpublic information.  The SEC’s complaint 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… 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.”

Jina L. Choi, Director of the SEC’s San Francisco Regional Office, was quoted:

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.

The SEC said that Sadeghi and Kennedy agreed to settlements that are subject to court approval, but the settlement is also said to be without admitting or denying the allegations. The SEC also showed the following terms:

• 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.

The actual SEC complain showed that Brett Kennedy is 26 and is a resident of Blaine, Washington. That complaint noted:

At the time of the events alleged herein, Kennedy was employed as a Financial Analyst in one of Amazon’s divisions, with responsibility for performing financial analysis related to Amazon’s bad debt and fraud expenses. In May 2017, Kennedy resigned from Amazon.

Rezakhani and Sedeghi were noted in the formal complains as follows:

Maziar Rezakhani, age 28, is 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 criminal matter. At the time of the events alleged herein, Rezakhani was a resident of Bellevue, Washington and operated businesses engaged in the resale of iPhone and other computer products, among other activities.

Sam Sadeghi, age 28, is a resident of Newcastle, Washington. At the time of the events alleged herein, Sadeghi was employed as an engineer, and he also acted as Rezakhani’s trading partner and investment adviser, providing securities research and trading advice in exchange for 10% of the profits earned from Rezakhani’s securities trading. Sadeghi and Rezakhani referred to each other as “cousins”.

FULL SEC COMPLAINT

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