A former executive at a Port Washington-based pharmaceutical company has pleaded guilty to charges of securities fraud for insider trading.
Douglas Roth of East Northport was serving as CFO of Aceto Corp., a company engaged in the development, marketing, sale and distribution of what court documents call “generic pharmaceuticals and chemicals,” when prosecutors say he attempted to avoid company losses by selling stock prior to announcing a $100 million writedown.
On Monday, at the federal courthouse in Central Islip, Roth pleaded guilty to insider trading charges before U.S. District Judge Joan M. Azrack. When sentenced, Roth faces up to 20 years in prison, as well as forfeiture and a fine of up to $5 million.
According to court filings and facts presented during the plea proceeding, Roth was CFO of Aceto for 17 years before retiring on March 31, 2018. During that time, shares of Aceto traded on the NASDAQ exchange under the ticker ACETQ.
“Between January and March 2018, Roth was aware of non-public information that Aceto’s financial performance had worsened substantially as compared to its most-recent publicly-released financial statements, including that Aceto was likely to breach certain financial covenants it owed to its bank lenders, and that Aceto might need to write down more than $100 million in goodwill assets,” prosecutors said in a statement.
“While in possession of that non-public information, Roth sold approximately 69,549 shares of Aceto stock. Shortly thereafter, Aceto issued a press release publicly announcing that its financial condition had worsened, that it had breached certain financial covenants, and that it would need to write down significant goodwill assets, after which Aceto’s share price dropped significantly. By selling his shares before the press release was issued, Roth avoided more than $145,000 in losses.”
Reuters Legal reported that shareholders later sued Aceto, Roth and other executives after the disclosures, alleging that the company should have written down its assets sooner and had made misrepresentations to investors. Aceto, which filed for bankruptcy in early 2019, did not respond to the complaint, and the executives argued in turn that investors had failed to allege the statements at issue were material or false, leading to a judge dismissing them in 2019.
Seth D. DuCharme, acting U.S. attorney for the Eastern District of New York, and William F. Sweeney, Jr., assistant director in charge of the Federal Bureau of Investigation’s New York field office, announced the guilty plea.
“Corporate officers cannot use their positions of trust for personal benefit at the expense of shareholders,” DuCharme said. “As demonstrated by today’s guilty plea, this office will vigorously prosecute those who abuse their positions to defraud the financial markets.”
DuCharme added that the New York regional office of the Securities and Exchange Commission cooperated and assisted in the investigation.
The government’s case is being handled by the office’s Business and Securities Fraud Section, with Assistant U.S. Attorneys Alixandra E. Smith and Mathew S. Miller in charge of the prosecution.
Roth joined Aceto in 2001 as vice president and CFO, leaving a position as vice president and CFO of courier and logistics company CitySprint. In 2010, Roth was elevated to senior vice president and chief administrative officer.
In addition to its Port Washington headquarters, the company has offices in Lyon and Paris, France; Dusseldorf and Hamburg, Germany; Heemskerk in the Netherlands, Runcorn, Wales in the United Kingdom; Maharashtra, India; Shanghai, China; Muntinlupa City in the Philippines; and on the island of Singapore.
Aceto did not immediately reply to a request for comment.