Jason Napodano gained some widespread recognition in a certain group of biotech investors and Twitter mavens while he was the senior biotech analyst at Zacks Small Cap Research. But for around three years, while Napodano was providing coverage on a slate of micro cap biotechs, he and a pair of colleagues in the brokerage business also ran a penny ante insider trading ring, allegedly sharing information as they schemed up ways to make thousands of dollars off the penny stocks he covered.
And now he faces up to 20 years in prison for securities fraud, if convicted.
The US Attorney’s Office in Chicago alleges that Napodano managed to glean $143,865.48 from the insider trading scheme, the same amount he agreed to pay — alongside a similar amount for a fine — in settling with the SEC. Napodano was charged alongside Bilal Basrai, a broker at LBMZ Securities (formerly Zacks & Company), who prosecutors say has opted to cooperate in the case.
Another LBMZ exec, Bryce Stirton, also settled the SEC insider trading charges after agreeing to give up a little more than $2,000, plus pay a similar fine.
In each of these cases, the alleged schemers bought up chunks of stock and quickly dumped them after they spurted up or slid down a few cents, looking for a quick score.
The feds say that Napodano took the lead on one occasion, sharing nonpublic information about a licensing deal he had heard of from a company exec. Another time Basrai allegedly took the lead with news of a merger gone bad, while a third case involved advance word of a Nasdaq listing. And throughout Napodano was writing about companies he was secretly trading on, while claiming not to have any stake in the biotechs.
In settling with the SEC, Napodano agreed to being barred for the rest of his life from trading in penny stocks. The other two were barred from the securities business, after Basrai agreed to settle the charges by paying disgorgement of his insider trading profits of $39,668.37 plus prejudgment interest of $4,617.89 and a penalty of $39,668.37. Stirton agreed to settle the charges without admitting or denying the allegations by paying disgorgement of his insider trading profits totaling $2,218.87 plus prejudgment interest of $257.43 and a penalty of $2,218.87.
Stirton was not charged with fraud and will get a shot at returning to the securities industry after 5 years.
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