On March 1, the SEC charged 14 defendants in an insider trading scheme that netted more than $15 million in illegal profits on thousands of trades, using information stolen from UBS Securities LLC and Morgan Stanley & Co. Inc.
The SEC complaint alleges that eight Wall Street professionals, including a UBS research executive and a Morgan Stanley attorney, two broker-dealers and a day-trading firm participated in the scheme. The defendants also include three hedge funds, which were the biggest beneficiaries of the fraud.
Linda Chatman Thomsen, director of the division of enforcement for the SEC, said in a statement, “What is so alarming about the conduct alleged in the SEC’s case isn’t just the scope of the scheme ... but, sadly, who is at the center of it… And this conduct didn’t occur in obscure boiler rooms — but rather at what are commonly considered ‘top tier’ Wall Street firms.”
According to the SEC, Wall Street professionals repeatedly traded on secrets revealed to them by insiders at UBS Morgan Stanley. Among financial professionals charged criminally in the U.S. District Court in Manhattan was Mitchel Guttenberg, an executive director and institutional client manager at UBS.
Guttenberg, who worked in UBS’s equity research department, allegedly sold non public information regarding upcoming upgrades and downgrades in UBS analysts’ securities recommendations to two men for hundreds of thousands of dollars. The men, David Tavdy and Erik Franklin, allegedly used the UBS inside information to each earn more than $4 million by executing profitable trades in various brokerage accounts they controlled. A UBS spokesperson said, “UBS is assisting the authorities to the fullest extent possible in their investigation into the alleged actions of a single UBS employee. The U.S. attorney has described UBS as a victim of this alleged scheme.”
Two attorneys, Randi Collotta , who worked for Morgan Stanley, and her husband, Christopher Collotta, who worked in private practice, also were among those criminally charged.
In the indictment, prosecutors said Randi Collotta was an associate in Morgan Stanley’s global compliance division when she passed inside stock tips to her husband, who gave it to others, resulting in illegal profits of hundreds of thousands of dollars between September 2004 and August 2005.
After others made money from the tips, they paid Christopher Collotta cash that represented a portion of their profits, according to the indictment.
The SEC says the scheme involved unlawful trading ahead of upgrades and downgrades by UBS research analysts and corporate acquisition announcements involving Morgan Stanley’s investment banking clients.
“Today’s case demonstrates the Commission’s resolve and ability to aggressively investigate and prosecute insider trading,” Thomsen says.