U.S. Securities and Exchange Commission
Litigation Release No. 18145 / May 19, 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 Pleads Guilty to Criminal Insider Trading Charges
The Commission announced today that, on May 14, 2003, Timothy J. Potter of Bedford, New Hampshire, pleaded guilty to a criminal information charging him with conspiracy to commit insider trading. Potter acknowledged that in October 2000, he disclosed to his father, George R. Potter, confidential information concerning adverse corporate developments at Sepracor, Inc. that related to a drug then being jointly developed by Eli Lilly and Company and Sepracor. At the time, Potter was employed as a manager in the accounting department of Sepracor, a Marlborough, Massachusetts-based pharmaceutical company. Potter admitted that his father then used the information to trade in Sepracor securities and later transferred the resulting profit to him.
At the plea hearing, Potter admitted that, on October 18, 2000, he told his father about the adverse corporate developments at Sepracor. Potter further admitted that, later that day, on the basis of the information he gave to his father, his father purchased Sepracor "put" options. The following morning, when Sepracor publicly announced the termination of its agreement with Lilly concerning the new drug, Sepracor's stock price plummeted while the value of Sepracor put options soared. Shortly after the announcement, George Potter sold the Sepracor put options, generating an overnight profit of more than $55,000. Potter admitted that his father later transferred that profit to him. Potter also admitted that he made false and misleading statements to the Commission staff during its investigation into his father's trading.
Potter will be sentenced on August 18, 2003. On April 18, 2003, George Potter, also of Bedford, New Hampshire, pleaded guilty to a criminal information charging him with conspiracy to commit insider trading. George Potter will be sentenced on July 22, 2003.
On January 30, 2003, the Commission filed a civil fraud case charging George Potter and Timothy Potter with insider trading based on George Potter's October 18, 2000 purchase of Sepracor options. According to the Commission's complaint, by their conduct, the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission's complaint seeks injunctive relief, disgorgement of the profits from their insider trading, plus prejudgment interest, and civil monetary penalties against each of the defendants of up to three times the amount of their profits from their insider trading. For further information, see Litigation Releases No. 17958 (January 30, 2003), No. 17970 (February 5, 2003) and No. 18097 (April 22, 2003).