Milan Patel and four other defendants were charged both by the SEC and the Department of Justice for their role in an options trading scheme in the Northern District of Georgia. Another defendant, Bart Ross was sentenced a few years ago for the same scheme. In total, In total, the defendants executed more than 500 trades and made $2,651,320 in profits as a result of their fraudulent scheme. And just last week, Mr. Patel was sentenced.
According to the NDGA DOJ news release:
According to Acting U.S. Attorney Moultrie, the charges and other information presented in court: Between approximately October 2017 and January 2020, Milan Patel, Bart Ross, Mark Melnick, Anthony Salandra, and Charles Parrino conspired to trade securities—primarily short-term call options—in large, publicly traded companies based on materially false rumors about those companies that they generated and disseminated. These materially false rumors were intended to increase the price of the securities (both the underlying stock and options).
Call options are essentially a contract that gives the options’ holder the right, but not the obligation, to buy shares of the underlying stock at a set price per share—the option’s strike price—on or before a set future date (the option’s expiration date). Generally, the holder of a call option benefits when the price of the underlying stock increases. Short-term call options are ones that generally expire within a week.
Ross, Salandra, and Parrino, were formerly registered brokers with the Financial Industry Regulatory Authority (FINRA) and were responsible for drafting some of the fraudulent rumors. The conspirators would often refine a proposed rumor by exchanging drafts among themselves using the Trillian instant messaging application.
Melnick was a day trader and T3 Live Senior Trading Strategist who often provided technical evaluations on whether a particular false rumor would be successful. These rumors were carefully crafted to: (a) appear plausible enough to other market participants to move the price of the underlying security; and (b) move the price of the security in a particular direction—namely move the stock or option price up—so that Patel and the other conspirators could profitably trade on the rumors.
Patel was responsible for disseminating the rumor via Trillian to multiple accounts, which would in turn result in the false rumor being distributed over one or more market subscription services, including Trade The News, TradeXchange, and Benzinga, as well as various Twitter accounts.
Before Patel disseminated the rumor, the co-conspirators would acquire a position in the publicly traded company that was the subject of the rumor. The co-conspirators purchased short-term call options often mere seconds before Patel disseminated the rumor. The conspirators often purchased short-term call options because the price of such options is more sensitive than the price of the underlying stock. The conspirators profited from their scheme by selling the options (or other securities) after they increased in price. They would then sell off their positions shortly after the rumor was disseminated and the price of the option or underlying stock had increased.
Most of these defendants ended up with a plea with one count of conspiracy to commit wire and securities fraud. When you see a case where the original situation with most defendants are charged in an indictment, and it ends with a plea to a one count, criminal information – this is good news. This means that the federal criminal defense lawyer has done their job well and worked out a resolution that limits the sentencing guidelines and ultimate months of incarceration.
In this case, if one has plead to Conspiracy to commit wire and securities fraud, the base offense level would be a 6. There will be an increase pursuant to the chart on what the intended loss amount is. There also can be enhancements such as:
- the number of victims
- being a registered broker at the time of the offense
- abuse of position of trust
- sophisticated means
- use of a special skill
Then, there can be levels taken off for acceptance of responsibility and zero point offender. And finally, if the defendant has any criminal history the final number will be amended pursuant to Criminal History Category. Once the final number is determined by the judge, the second part of the sentencing hearing will occur – discussing 3553 factors.
Contact an experienced federal criminal defense lawyer like Conaway & Strickler, PC. We have close to 30 years experience in federal criminal and SEC defense.