Here's a way to make some money: Foster a friendship with a guy in the finance department of a tech giant – say, Amazon – and have the guy feed you tips ahead of earnings releases. As long as the Securities and Exchange Commission doesn't notice your suspiciously timed trades and trail of incriminating communications, it's a fool-proof get-kind-of-rich-quick scheme.
Excepting one detail, that's basically the story of Maziar Rezakhani, a former electronics retailer and budding investor, and former Amazon financial analyst Brett Kennedy, per a criminal complaint filed in the Western district of Washington Thursday by the SEC:
On or about April 20, 2015, before the meeting with Rezakhani, Kennedy obtained Amazon’s nonpublic Q1 2015 revenue and earnings information by accessing sections of Amazon’s financial database that he knew he was not authorized to access and were outside the scope of his employment responsibilities. Kennedy wrote down Amazon’s revenue and earnings numbers for Q1 2015 on a slip of paper to give to Rezakhani.
So far so good. The handwritten note is a nice touch. No googling “how sec detect unusual trade” here. No, Rezakhani had a better idea:
After his meeting with Kennedy on the evening of April 20 and in the days leading up to Amazon’s announcement, Rezakhani posted on at least two trading-related internet communication platforms that Amazon’s Q1 2015 revenue would be $22.7 billion and Q1 2015 earnings per share (“EPS”) would be -$0.12, boasting that these were his predictions for Amazon’s financial results.
On the morning of April 23, just hours before Amazon's Q1 numbers went live, Rezakhani cleared up $1.715 million in his portfolio and plowed it all into Amazon shares, the complaint says. But again, he had some business to take care of before the big moment of truth came around:
Around the same time, Rezakhani posted the revenue and EPS numbers again on an internet platform and boasted that the “numbers are so obvious” that a “5 year old can guess what they will do.”
Sure enough, Amazon reported above-consensus earnings – just as the insider numbers suggested – and shares spiked 15 percent. Rezakhani traded congratulatory texts with his trading partner – with whom he planned to open a hedge fund – then immediately offloaded the stock, the SEC alleges. He booked profits of $116,000, $10,000 of which was paid to Kennedy. You can imagine what happened from there.
In all likelihood, it was the SEC's insider-trading detection bot that led prosecutors to Rezakhani, not the blog posts. And Rezakhani isn't exactly low-profile. Earlier this year he got a five-year sentence on federal charges of defrauding a bank and some shipping companies in a case the judge described as “a familiar story of unrelenting greed and lies winning out over hard work.” Rezakhani lived in a penthouse and drove a Ferrari when he wasn't driving his other Ferrari.
But still. If you're going to trade on material non-public information, the absolute least you can do is refrain from announcing it on SeekingAlpha or whatever (the exact “internet platform” Rezakhani used is left a mystery). Then again, it's good to get exposure.
[Securities and Exchange Commission vs Kennedy et al., 2:17-cv-01344]