Related: Slow Saturday Special: Golf Game
Maybe we should make it a tradition -- if you can escape of the sand pit.
"Golf buddies charged with insider trading; Top amateurs among golfers accused of using insider tips to make thousands in the market" by Erin Ailworth | Globe Staff July 11, 2014
One member of the country club was a senior executive at American Superconductor Corp., and another, Eric J. McPhail, was a champion golfer. They bonded over golf and drinks and built a friendship that became so close that the executive allegedly felt safe confiding sensitive information about his company’s success and troubles to McPhail.
But federal investigators allege McPhail passed along the information to other golfing friends, who included some of the best amateurs in the state.
Dubbed the “Golfing Group’’ by federal investigators, the circle of friends on Friday was accused of making thousands of dollars in the stock market with the insider information, enthusiastically sharing tips via e-mail and at one point referring to Gordon Gekko, the unscrupulous trader in the 1987 movie “Wall Street.”
“I like Pinot Noir and love steak,” McPhail wrote in one e-mail exchange, according to court records. “Looking forward to getting paid back. Good luck . . . . SHHHHHHHHHHHHH!!!!!!!!!!!!!!!!!!”
On Friday, McPhail, his five golfing buddies, and one of his college friends were charged by the US Securities and Exchange Commission with violating the federal antifraud laws. Those accused included the Massachusetts Golf Association’s reigning player of the year, attorney Douglas Clapp, 47, of Walpole; and 42-year-old James A. “Andy” Drohen, of Granville, the 2003 winner of the Massachusetts Amateur Championship.
Also charged were McPhail, 40, of Waltham; attorney Douglas A. Parigian, 55, of Lowell; John J. Gilmartin, 43, of Andover; Drohen’s brother, John C., a 44-year-old resident of Cranston, R.I.; and McPhail’s college friend Jamie A. Meadows, 40, of Springfield. The executive, who was not named, was not charged.
“Whether the tips are passed on the golf course, in a bar, or elsewhere, the SEC will continue to track down those who seek an unfair advantage trading stocks,” said Paul G. Levenson, director of the SEC’s Boston regional office. “We are sending a message to all investors that insider trading does not pay.”
Nice to see a new cop on the $mall fry beat.
The SEC says the men made more than $550,000 in the transactions. The agency is seeking to have the men return their gains with interest and pay fines up to three times the profits they gained from insider trading, which occurred between 2009 and 2011, according to court records. Gilmartin, Clapp, and the Drohen brothers have agreed to settle with the commission without admitting or denying the charges, authorities said.
The men could not be reached for comment. American Superconductor, which does business under the name AMSC, declined to comment.
AMSC of Devens makes control systems for wind turbines. The company has struggled in recent years, following the alleged theft of its intellectual property by its onetime largest customer, Chinese wind turbine maker Sinovel Wind Group Co.
See: The Karabasevic Caper
According to SEC court filings, the unnamed AMSC senior executive and McPhail, who worked for a stone fabrication company, became friends as members of an unidentified country club. (In 2009, McPhail and his wife made news when they won the men’s and women’s championships at Oakley Country Club in Watertown, where McPhail’s wife had grown up golfing.)
McPhail and the AMSC executive became fast friends, socializing on and off the green and eventually talking almost daily — chats during which they exchanged confidences about family and work. The executive even paid a $6,000 gambling debt for McPhail, according to court records.
In July 2009, investigators said, McPhail began sharing what he learned from the executive via mass e-mails to the Golfing Group.
“Try this one . . . . AMSC . . . watch it July 30th,” McPhail he wrote in one of his first messages, according to the SEC filing, later following up with: “Now is a good time to buy from what I am told. Depending on how the market does that day, maybe a 20% jump that day?”
After initial reservations, the other men were soon purchasing AMSC shares when good news was imminent and betting against, or shorting, the stock when business was about to go downhill.
The money is literally chauffeured to you.
Amid e-mail banter among members of the “Golfing Group,’’ according to the SEC, McPhail wrote: “Nice profitable day for the boys. So when should I report in on which restaurant and massage parlor I want to be treated to?’’
After one tip, Clapp, the reigning MGA player of the year, wrote McPhail, “Wow!! When do we get out? Eric [the golf tournament] is on me. No need to bring your checkbook,” according to the SEC court filing.
Two of McPhail’s friends — Parigian, the attorney from Lowell, and Meadows, the college friend from Springfield — profited heavily in 2011 when they traded on inside information that AMSC’s relationship with Sinovel was deteriorating, according to court records. The Chinese firm had just refused to accept contracted shipments from AMSC or pay for previous deliveries, an event that would lead AMSC to big financial losses and layoffs.
The AMSC executive confided his worries about these troubles to McPhail during the course of several drinks at a bar one night, and McPhail shared the news, according to court document. While still out with his friend, McPhail called Parigian, who in turn called his broker; the next day, McPhail also spoke with Meadows, who also rang his broker asking, according to court documents “how he could make money trading a stock whose share price he believed would drop.”
Meadows ultimately made $191,521, while Parigian made profits and avoided losses of $278,289, the SEC said.
Sinovel, meanwhile, was later indicted on charges of stealing American Supeconductor’s technology with the help of an AMSC employee in Austria. That employee was sentenced by Austrian authorities to a year in jail.
For his role in his friends’ ability to profit off AMSC’s successes and troubles, the SEC is asking that McPhail “disgorge all ill-gotten gains or unjust enrichment.” SEC officials did not return a request for comment.
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Related: SEC $ettles American Superconductor Case
