U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22910 / January 27, 2014
Securities and Exchange Commission v. Joseph M. Tocci, Civil Action No. 1:13-CV-11924 (District of Massachusetts, Complaint filed August 12, 2013)
United States v. Joseph M. Tocci, 1:13-CR-10239-RWZ (District of Massachusetts, Complaint filed August 12, 2013)
Former Executive of Massachusetts-Based Company Sentenced in Insider Trading Case
The Commission announced today that, on January 21, 2014, Joseph M. Tocci, was sentenced for insider trading in the securities of Massachusetts-based American Superconductor Corporation. The criminal charges against Tocci arose out of the same conduct for which the Commission filed a securities fraud action against Tocci in 2013. Tocci pled guilty to the charges of insider trading on August 29, 2013.
According to the criminal information filed on August 12, 2013, Tocci, a former assistant treasurer of American Superconductor, learned in a call on or about March 31, 2011 with American Superconductor’s chief financial officer that the company’s primary customer, Sinovel Wind Group Co. Ltd., would not make past due payments and would not accept shipments scheduled for the end of the quarter on March 31, 2011. The criminal information further stated that following the call and discussions with other members of the finance staff, Tocci knew that American Superconductor’s actual financial results for fiscal year 2010 (ended March 31, 2011) would likely be well below analysts’ expectations for the company. According to the information, Tocci knew that he was not allowed to trade in American Superconductor shares based on material, nonpublic information about the company. However, on April 1, 2011, while in possession of material, nonpublic information concerning Sinovel, he purchased 100 American Superconductor put option contracts. In the context of stock transactions, a “put option” is the right to sell a particular stock at a certain price (the “strike price”) by a certain date (“expiration date”). For the put options that Tocci purchased, if American Superconductor’s stock price declined significantly before May 21, 2011, Tocci stood to profit from the put option contracts. On April 5, 2011, American Superconductor made a public announcement that Sinovel had refused to accept scheduled shipments and that the company expected Sinovel to reduce its level of inventory before accepting further shipments and that American Superconductor expected its revenues for the fourth quarter and/or fiscal year 2010 (ended March 31, 2011), and its expected earnings, to be substantially below prior forecasts. On April 6, 2011, American Superconductor’s stock price dropped 42%, closing at $14.47 per share. Tocci sold his put options for $95,092.37, earning a profit of approximately $82,440. Tocci was sentenced to one year probation, a $100 fine, and was required to continue to pay disgorgement, prejudgment interest, and civil penalties he previously agreed to with the Commission.
In a parallel Complaint filed on August 12, 2013, in the U.S. District Court for the District of Massachusetts in Boston, the SEC alleges that Tocci, age 59, of Belmont, Massachusetts, used confidential information he obtained as the assistant treasurer of American Superconductor to purchase option contracts through which Tocci essentially bet that the company’s stock price would soon decrease on the release of negative news. Tocci agreed to settle this case by consenting to a judgment enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordering him to pay disgorgement of $82,439 (representing his ill-gotten gains) plus prejudgment interest of $6,109 and a civil penalty of $82,439.
The SEC’s investigation was conducted by Asita Obeyesekere, Michael Foster, and Kevin Kelcourse in the SEC’s Boston Regional Office. The Commission acknowledges the assistance and cooperation of the U.S. Attorney’s Office for the District of Massachusetts and the Federal Bureau of Investigation’s Boston Field Office. The Commission also thanks the Options Regulatory Surveillance Authority and the Financial Industry Regulatory Authority for their assistance.
For more information see Litigation Release No. 22775 (August 12, 2013).