Federal prosecutors in Chicago have charged a stock analyst who lives in Waxhaw with securities fraud for allegedly making profits on trades using inside information.
In a related case, the U.S. Securities and Exchange Commission also charged Jason Napodano, 43, with insider trading ahead of the publication of research reports and articles he wrote under the false disclaimer that he wasn’t trading in the companies he covered, the agency said Tuesday.
The SEC complaint covers a period when Napodano headed Zacks Small Cap Research, an affiliate of a Chicago-based broker-dealer called LBMZ Securities, formerly known as Zacks & Co. According to his LinkedIn profile, he came to Charlotte in 2015 and since March has been the founder and managing director of a company called Bio5C, a research firm for biotech and pharmaceutical stocks.
According to the SEC, Napodano agreed to settle the agency’s charges and to be banned from trading in penny stocks for the remainder of his life. The arraignment on the criminal charges in Chicago has not been scheduled.
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The SEC alleged that Napodano misled investors in penny stocks – speculative shares that trade for less than $1 – by saying that he wasn’t trading or owning shares of the companies while secretly doing so. Napodano agreed to pay back insider trading profits of $143,865, plus interest of $17,620 and a penalty of $143,865.48, the SEC said.
The agreement needs court approval.
“Retail investors seek honest rather than conflicted research to help them make decisions about which stocks to buy and trade,” said Steven Peikin, co-director of the SEC’s enforcement division in a statement. “It is unacceptable for analysts to represent they have no stake in the companies they’re writing about while secretly cashing in on trades in those stocks.”
Napodano declined to comment when contacted by the Observer.
According to LinkedIn, Napodano worked at Zacks from 2003 to 2015. He then came to Charlotte, where he started a company called BioNap Consulting, then Bio5C. His biography says he “has significant experience as a pharmaceutical and biotechnology stock analyst,” as well as degrees from Virginia Tech and Wake Forest.
The “code of conduct” page on the Bio5C web site includes this statement without attribution: “I have made terrible mistakes in the past when it comes to disclosure and personal trading. For these mistakes, I am truly ashamed and sorry. My mistakes, although now just public, were between 2013 and 2015. I learned a tough lesson. I’m committed to impeccable disclosure and ethics on Bio5C.”
The U.S. Attorney’s Office said that in a related case Bilal Basrai, a former managing director of LMBZ Securities, used non-public information to earn about $37,157 in illegal profits from the purchase and sale of stock in three companies. The office said Basrai’s legal counsel authorized prosecutors to disclose that Basrai, 43, of Naperville, Ill., has cooperated with the government and plans to plead guilty.
The SEC also charged Basrai and another colleague at LBMZ for allegedly trading on nonpublic information that they and Napodano shared about certain small companies. According to the SEC complaint, the three men breached the “duties of trust and confidentiality” owed to companies that hired hired Zacks to provide research or LBMZ to serve as an adviser.
The agency said LBMZ agreed to be censured and pay a $240,000 penalty without admitting or denying the SEC’s findings that it failed to enforce policies and procedures.
The U.S. Attorney’s Office emphasized that defendants are presumed innocent and entitled to a fair trial. Securities fraud can be punished by up to 20 years in prison.