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The insider trading case against an NFL linebacker and a former Black-ish writer, explained

Damilare Sonoiki allegedly gave Mychal Kendricks stock tips in exchange for NFL tickets, cash, and time on the set of a music video shoot.

Fans hold a cut out head of Mychal Kendricks of the Philadelphia Eagles during their Super Bowl Victory Parade on February 8, 2018 in Philadelphia, Pennsylvania.
Fans hold a cutout head of Mychal Kendricks of the Philadelphia Eagles during their Super Bowl victory parade on February 8, 2018, in Philadelphia.
Rich Schultz/Getty Images
Emily Stewart covers business and economics for Vox and writes the newsletter The Big Squeeze, examining the ways ordinary people are being squeezed under capitalism. Before joining Vox, she worked for TheStreet.

A linebacker for the Cleveland Browns and a former writer for the TV comedy Black-ish have been charged with insider trading for a deal that allegedly involved trading stock tips for NFL tickets, tens of thousands of dollars of cash, and an evening on the set of a music video.

The Securities and Exchange Commission and US Attorney’s Office for the Eastern District of Pennsylvania announced criminal and civil charges on Wednesday against NFL linebacker Mychal Kendricks and Damilare Sonoiki, who was a junior analyst at an investment bank before becoming a television writer. (According to public records, Sonoiki worked at Goldman Sachs.)

Kendricks allegedly made $1.2 million in illegal profits through an insider trading scheme devised with Sonoiki after the two met at a party, according to charging documents.

Kendricks has admitted to and apologized for his actions. In a statement released by his attorneys, he apologized but also attempted to place blame on Sonoiki, whose “background as a Harvard graduate and an employee of Goldman Sachs gave me a false sense of confidence.” He said that while he didn’t “fully understand all of the details of the illegal trades,” he knew they were wrong.

“When individuals engage in insider trading … it undermines faith in our financial markets and harms ordinary investors who do play by the rules,” US Attorney William McSwain said in a statement announcing the charges.

Sonoiki reportedly told Kendricks about mergers and acquisitions on the horizon

Kendricks played for the Philadelphia Eagles for six years, including when they won the Super Bowl in February, before signing with the Cleveland Browns earlier this year. Sonoiki graduated from Harvard in 2013 and worked at Goldman Sachs for almost two years between 2013 to 2015, according to his AngelList profile; IMDB lists him as a writer for Black-ish in 2015 and 2016. Both are 27 years old.

According to the charges, Kendricks and Sonoiki met at a party. From July 2014 to March 2015, Kendricks got illegal tips from Sonoiki about upcoming mergers of four of Goldman’s clients. Mergers often lead to an increase in stock prices, and Kendricks bought call options — a type of security that’s essentially a bet that a stock’s price will go up — on companies that were going to be bought in merger deals before the deal was announced. Sonoiki also set up an online brokerage account that both men could access.

Kendricks made a lot of money doing it. According to the US attorney’s office, Sonoiki’s tips made Kendricks about $1.2 million on call options he bought on Compuware, Move, Sapient, and Oplink. News Corp. announced plans to buy Move, a real estate listing company, in September 2014, and Kendricks made a nearly 400 percent return, buying the options at $71,000 and selling them at $350,000.

In return, Kendricks allegedly gave Sonoiki tickets to Eagles games and about $10,000 in cash. He also allegedly let him spend an evening on the set of a music video in which Kendricks made a cameo appearance. The video appears to be “Maybe” by Teyana Taylor, released in 2014.

Joseph Sansone, chief of the SEC enforcement division’s market abuse unit, said in a statement that Kendricks and Sonoiki allegedly tried to “evade detection by using a variety of communication methods to hide their misconduct, but we were able to use methodical investigative work to piece together a trail of evidence and expose their insider trading scheme.”

The SEC’s complaint says the pair tried to minimize phone calls, used “coded language” in text messages, and talked via FaceTime, which they thought wouldn’t be uncovered. In one example the SEC provides, Kendricks in an exchange with Sonoiki tries to pretend he’s talking about his jersey number when he’s really referencing a deposit, Tom Schad at USA Today points out:

“Yo so the 80 is there,” Kendricks texted Sonoiki after initially depositing $80,000 into the new brokerage account used for trading, according to the charges.

“Nah you should keep number 95,” Sonoiki replied.

“They said I couldn’t get the 80 anyways only WR could get that number,” Kendricks answered.

Kendricks has already admitted to insider trading and apologized

On Wednesday, Kendricks admitted to the charges, said he was sorry, and tried to cast himself as a young man who at the time just didn’t know what he was doing.

“I have worked my tail off since I was 5 years old to become the football player that I am today,” he said. “I was drawn in by the allure of being more than just a football player. While I didn’t fully understand all of the details of the illegal trades, I knew it was wrong, and I wholeheartedly regret my actions.”

He said he has cooperated with authorities since the start of the investigation, and that he didn’t take any profits for himself but was “committed to repaying all of the funds gained illegally and accept the consequences of my actions.”

Rob Long, a partner at Bell Nunnally and former SEC attorney and federal prosecutor, told me the SEC’s penalty on the civil side will likely include repayment of the $1.2 million in ill-gotten gains plus up to additional fines of three times that amount. On the criminal side, if they’re convicted, each defendant faces a maximum possible sentence of 25 years in prison and a more than $5 million fine, according to the US attorney’s office.

“Ultimately, any kind of sentence is likely to be influenced by the federal sentencing guidelines, which are going to take into consideration gains, victims, any acceptance of responsibility, and whether there is an abuse of trust, among other things,” Long said.

Kendricks’s apology and cooperation indicates he may be looking to strike some sort of a plea deal.

An NFL spokesperson told the Associated Press the league is aware of the developments and would “review the matter.” The Browns in a statement said the team is also aware of the situation and is in communication with the NFL. Kendricks won’t travel with the team to Detroit to their game against the Lions on Thursday night.