U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18255 / July 28, 2003
Securities and Exchange Commission v. Timothy J. Potter and George R. Potter, Civil Action No. 03-32-M (D.N.H.)
NEW HAMPSHIRE MAN SENTENCED IN CONNECTION WITH CRIMINAL INSIDER TRADING CHARGES
The Commission announced today that, on July 22, 2003, a New Hampshire federal court sentenced Bedford, New Hampshire resident George R. Potter to six months of home detention and twelve months probation in an insider trading case brought by the United States Attorney. Potter, age 65, previously had pleaded guilty to engaging in an scheme to trade in the securities of Sepracor, Inc., a Massachusetts pharmaceutical development company, based upon confidential information leaked to him by his son, a Sepracor employee. In January 2003, the Commission brought a civil injunctive action against Potter and his son in connection with the same trading.
In connection with his earlier guilty plea, Potter acknowledged that, on October 18, 2000, his son, Timothy J. Potter, disclosed to him confidential information concerning adverse developments relating to (R)-fluoxetine, a pharmaceutical drug then being jointly developed by Sepracor and Eli Lilly and Company. At the time, Timothy Potter was employed in Sepracor's accounting department. Potter further admitted that, minutes later, he used that information to purchase put options for Sepracor stock. The purchase of a put option, which gives its purchaser the right to sell the underlying stock at a predetermined price by a certain date, is essentially a bet that the price of the underlying securities will decline.
When Sepracor and Eli Lilly publicly announced the adverse developments the following morning, Sepracor's stock price plummeted while the value of Sepracor's put options soared. Hours after the announcements, Potter sold the Sepracor put options, generating an overnight profit of more than $55,000. Potter admitted that he later transferred that profit to Timothy Potter. Potter also admitted that he attempted to mislead the Commission staff in sworn testimony he provided in an investigation the staff was conducting into his trades.
United States District Judge Steven J. McAuliffe sentenced Potter to twelve months probation with a special condition of six months of home detention with electronic monitoring and imposed a fine of $2,000. Timothy Potter has pleaded guilty to related charges and is scheduled for sentencing on August 18, 2003. For further information, see Litigation Releases No. 17958 (January 30, 2003), No. 17970 (February 5, 2003), No. 18097 (April 22, 2003) and No. 18145 (May 19, 2003).