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by Mike Caswell

Boston prosecutors have suffered a setback in their case against two Florida men for a $4-million insider trading scheme that included Aphria Inc. of Ontario. (All figures are in U.S. dollars.) A co-operating witness, who had provided the tip the men traded on, has backed out of a deal with prosecutors. He cites mental health problems associated with his co-operation.

The setback comes as part of a case that prosecutors have been pursuing against Ryan Shapiro and Kris Bortnovsky for insider trading with four companies. Most of the scheme centered on Aphria, with that portion of the trading generating $2.2-million in gains, the government said. According to prosecutors, Mr. Bortnovsky learned of a planned takeover for Aphria, and then bought out-of-the-money options before the deal became public.

The present trouble for prosecutors arises with their main witness, David Schottenstein. Prosecutors claimed that Mr. Schottenstein was in close contact with an insider who provided the information the men traded on. Mr. Schottenstein, who was initially charged alongside the others, entered into a co-operation agreement with the government and pleaded guilty. That deal would have seen him testify against the others.

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