Office Broker Sued By SEC For Documents In Insider Trading Investigation
The Securities and Exchange Commission has filed a lawsuit to force Current Real Estate Advisors co-founder Brandon Charnas to comply with a subpoena and hand over records as part of an investigation into possible insider trading.
In a suit filed in federal court in the Southern District of Florida Tuesday, the SEC is arguing that the real estate broker can't use his Fifth Amendment right to avoid the request for documents.
Charnas was served with a subpoena for documents in November, and in April Charnas' lawyers said he would be invoking his Fifth Amendment rights to avoid self-incrimination. The SEC has told Charnas’ counsel the request isn't subject to that constitutional protection because the SEC is aware of the records.
Charnas and the SEC met in May in an attempt to resolve the matter, but an agreement couldn't be reached, according to the suit. The government agency is asking the court to force him to show cause for why he shouldn't comply and order him to do so — or find him in contempt.
The investigation relates to stock trades Charnas was found to have made in the weeks ahead of Staples’ attempt to buy Office Depot, which ultimately made him nearly $400K in profit, according to a press release.
Charnas didn't respond to a request for comment.
Charnas began trading in ODP, Office Depot's parent company, in December 2020. On Dec. 14 of that year, he purchased 2,100 shares with his Robinhood Securities account, the SEC said in its lawsuit Tuesday. He continued acquiring shares and options until Jan. 11, 2021, when Staples’ parent company announced before trading that it had written to ODP, proposing to acquire it for $40 per share in cash.
In court documents, the SEC claims Charnas purchased ODP stock and options “while communicating frequently with multiple other individuals who traded ODP options and/or common stock” over text, iMessage, WhatsApp, phone calls and emails.
“The timing of Charnas’ trading and communications activity with other traders ramped up in advance of the Staples’ Acquisition Offer,” the suit says. “Specifically the last two weeks of December 2020 when Staples was preparing to publicly approach ODP with an offer in the coming weeks, but had not made a public announcement.”
The SEC claims Charnas met with traders for lunch on Dec. 23, 2020, in Miami and immediately after lunch spent $31K on 200 out-of-the-money call options contracts of ODP.
Out-of-the-money call options are particularly risky, the suit says, and Charnas sold half the call options contracts he had bought that day for about $114K. That meant he had notched a 635% return on investment for a security that he held for just under three weeks. He sold the second half of the shares for $63K in April 2021, a 307% return, per the suit.
In the last two weeks of 2020, the SEC says Charnas bought 16,110 ODP shares, paying between $26.89 and $29.39 per share. He began selling those shares between Jan. 11 and Feb. 12, 2021, for $42.15 to $47 per ODP share. The SEC claims these trades made him a combined profit of $385K.
The SEC also claims Charnas communicated with several other traders it has identified as participating in suspicious trading of ODP equities and options. While the SEC has procured cellphone messages from other unnamed parties in the investigation, it believes in “good faith” that Charnas has more records its staff does not have.
The commission says it has not yet concluded that there have been specific breaches of federal securities laws. However, it is running an investigation into whether trades were made based on information not publicly available or if people or entities breached their fiduciary duty to disclose information on ODP.
Charnas, who co-founded Current with Rob Kluge in 2018 after working at Warwick Capital Management, according to his LinkedIn profile, specialized in representing firms in the cryptocurrency industry and was active in New York and South Florida.
