In what is likely the more expensive rounds of golf, the Securities and Exchange Commission (SEC) today charged a group of friends, most of them golfing buddies at a country club, typically a tight knit circle, who made more than $554,000 of illegal profits from trading on inside information gleaned within the sanctuary of the golf course.

SEC filings SEC Enforcement

SEC tracking down those who seek an unfair advantage trading stocks

“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.  “Working with our partners in law enforcement, we are sending a message to all investors that insider trading does not pay.”

The SEC alleges that Eric McPhail repeatedly provided non-public information about American Superconductor Corporation (NASDAQ:AMSC) to six others, most fellow competitive amateur golfers.  McPhail’s source was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend, the SEC says.  According to the complaint, from July 2009 through April 2011, the executive told McPhail about market moving American Superconducter information, including expected earnings and contracts.  The motivation for passing this obviously sensitive information along in the first place remains a mystery, but it was done with the “trust” that McPhail would keep the information confidential.

Instead, McPhail, of Waltham, Massachusetts, tipped his friends, often via trackable email, to the insider news.  Those indicted include four golfing buddies living in Massachusetts: Douglas A. Parigian of Lowell, John J. Gilmartin of Andover, Douglas Clapp of Walpole, and James A. “Andy” Drohen of Granville and Drohen’s brother; John C. Drohen, a resident of Cranston, Rhode Island, was involved along with a longtime friend who was not a golfer, Jamie A. Meadows, of Springfield, Massachusetts.  Each of the six is charged with trading and profiting on the inside information McPhail supplied to them.

SEC charges against McPhail

The SEC charges that in April 2011, McPhail tipped Parigian and Meadows to weaker than expected earnings results a few days before American Superconductor Corporation (NASDAQ:AMSC) announced earnings. This information was used to place bets, through option contracts, that the company’s stock price would decline. When American Superconductor made the expected announcement days later, its stock price fell 42 percent and as a result of this one tip alone; Parigian profited to the tune of $278,289 and Meadows pocketed $191,521.

The judgments hit the defendents in the pocketbook.  Gilmartin was ordered to pay fines of $51,460; Clapp must pay $25,463; Andy Drohen was fined $48,931 while John Drohen pays a total of $19,455.