U.S. Securities and Exchange Commission
Litigation Release No. 18396 / October 7, 2003
SEC Settles Insider Trading Charges Against Timothy J. Potter and George R. Potter
Securities and Exchange Commission v. Timothy J. Potter, et al.
(United States District Court for the District of New Hampshire, Civil Action No. C-03-32-M)
The Commission announced today that, on October 2, 2003, a New Hampshire federal court entered final judgments, by consent, against Timothy J. Potter and his father, George R. Potter, of Bedford, New Hampshire, in connection with insider trading in the securities of Sepracor, Inc., a Massachusetts-based pharmaceutical company. The court permanently enjoined the Potters from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder (antifraud provisions), ordered them, jointly and severally, to pay disgorgement of $55,172 plus pre-judgment interest thereon of $10,344, and ordered them each to pay a civil monetary penalty of $55,172. The $55,172 amount represents the profit derived from George Potter's illegal October 2000 trading in Sepracor options.
The Commission's complaint, filed on January 30, 2003, alleged that Timothy Potter, a manager in Sepracor's accounting department, learned by October 18, 2000, that Eli Lilly and Company might terminate a license agreement with Sepracor concerning the development of a new version of Lilly's top-selling antidepressant, Prozac. According to the complaint, that same day, Timothy Potter tipped George Potter about the potential termination. Within half an hour, George Potter, acting on the tip, purchased put options on Sepracor stock for $30,694 in effect, betting that the price of Sepracor stock would fall. The next day, on October 19, after Sepracor publicly announced the termination of the license agreement, George Potter sold the options, profiting by $55,172. According to the complaint, on April 18, 2001, George Potter transferred $55,000 to Timothy Potter.
In related criminal actions brought by the New Hampshire U.S. Attorney's Office based on the same underlying conduct, the Potters each pleaded guilty to one count of conspiracy to commit insider trading. On September 18, 2003, Timothy Potter was sentenced to five months incarceration followed by three years of supervised release, including five months of home detention with electronic monitoring. He also was ordered to perform 50 hours of community service and to pay a fine of $3,000. On July 22, 2003, George Potter was sentenced to one year of probation with a special condition of six months of home detention with electronic monitoring. He also was ordered to pay a fine of $2,000. For further information, see Litigation Releases No. 17958 (January 30, 2003), No. 17970 (February 5, 2003), No. 18097 (April 22, 2003), No. 18145 (May 19, 2003) and No. 18255 (July 28, 2003).
The Commission acknowledges the assistance of the Chicago Board Options Exchange in this matter.