Insider Trader Can't Have Witnesses At Sentencing, Feds Say
By Elliot Weld
Law360 (March 1, 2023, 3:07 PM EST) -- Massachusetts federal prosecutors objected to an admitted insider trader's request to call five character witnesses to testify at his sentencing, saying there is no good reason for the judge to allow it.
Prosecutors said in a Tuesday court filing that admitted Designer Shoe Warehouse stock tipper David Schottenstein cannot produce a compelling argument for why the usual practice of submitting a sentencing memorandum with supporting letters is not sufficient. Insider trading is an unusual crime in that it is nearly impossible to identify who the victims are, prosecutors said.
"As a result, there will be no victims testifying at the defendant's sentencing — though his was certainly not a victimless crime," the government argued. "Allowing the defendant to present witnesses would thus create an imbalance, permitting him to benefit from the diffuse nature of his crime by skewing the presentation of evidence relevant to his sentencing."
Attorneys for Schottenstein said in a filing two days before that the character witnesses have "unique insight into David's life" and have asked to address the court at sentencing.
"This relief will not take over the proceeding by any means. Each of these individuals have requested only three to five minutes of speaking time," Schottenstein's motion said.
The requested character witnesses include Schottenstein's wife, childhood caregiver, one friend, one former neighbor from Miami and one longtime acquaintance who will be flying in from Israel to attend the March 21 sentencing hearing, according to the motion.
Schottenstein said that all five people "feel strongly about addressing this court at sentencing" and admitted that such a motion "is not typical" in Massachusetts federal court.
Schottenstein responded to the government's opposition Tuesday morning, saying that the benefits of having witnesses at sentencing "are obvious" and would allow the court to evaluate each character witness' credibility and sincerity.
Schottenstein initially agreed, after pleading guilty, to testify against two co-defendants whom he allegedly tipped off about trading shares of Designer Shoe Warehouse. The case against JPay founder Ryan Shapiro and Kris Bortnovsky was dropped in December after Schottenstein changed his mind, citing mental health concerns.
The government's opposition said Schottenstein had "undermined the government's prosecution and wasted the time and resources of multiple parties" by withdrawing from testimony.
Schottenstein's reply said he withdrew only on the advice of mental health professionals and did so months before Bortnovsky and Shapiro were scheduled to go to trial.
"Inexplicably, while pressing David to cooperate against Mr. Shapiro, the government made
multiple and repeated representations that David was not necessary for their case, that Shapiro would be arrested and prosecuted regardless of David's participation, and that David was not responsible for Shapiro's arrest," the reply filing said. "To see the government now reverse course on those representations and blame David for the dismissal of their case against Messrs Bortnovsky and Shapiro in an attempt to get this court to increase David's sentence is disappointing."
The Massachusetts U.S. attorney's office declined to comment Wednesday. Counsel for Schottenstein declined to comment beyond the response.
The government is represented by Seth B. Kosto and Stephen E. Frank of the U.S. Attorney's Office for the District of Massachusetts
David Schottenstein is represented by Devin Freedman, Eric S. Rosen and Richard Cipolla of Freedman Normand Friedland LLP.
The case is USA v. Schottenstein, case number 1:22-cr-10005, in the U.S. District Court for the District of Massachusetts
Clarification: This story has been updated to clarify Schottenstein's relationship with one of the witnesses.
--Additional reporting by Chris Villani. Editing by Gemma Horowitz.
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