UBS EXECUTIVE AND FORMER MORGAN STANLEY LAWYER AMONG 13 CHARGED IN MASSIVE INSIDER TRADING SCHEMES
NEW YORK â€" Ten indictments and criminal informations charging 13 defendants with participating in two massive insider trading schemes and two separate briberies were unsealed today, announced U.S. Attorney Michael J. Garcia of the Southern District of New York and Assistant Director-in-Charge Mark J. Mershon of the New York Office of the FBI. Mithchel Guttenberg, an executive director and institutional client manager at UBS Securities LLC (UBS), and Randi Collotta, a former in-house attorney at Morgan Stanley and Co. (Morgan Stanley), were charged along with 11 others for illegally gaining over $8 million in illegal profits in the securities industry.
(Media-Newswire.com) - NEW YORK – Ten indictments and criminal informations charging 13 defendants with participating in two massive insider trading schemes and two separate briberies were unsealed today, announced U.S. Attorney Michael J. Garcia of the Southern District of New York and Assistant Director-in-Charge Mark J. Mershon of the New York Office of the FBI. Mithchel Guttenberg, an executive director and institutional client manager at UBS Securities LLC ( UBS ), and Randi Collotta, a former in-house attorney at Morgan Stanley and Co. ( Morgan Stanley ), were charged along with 11 others for illegally gaining over $8 million in illegal profits in the securities industry.
Four of the 13 defendants have pleaded guilty to conspiracy, securities fraud, and commercial bribery charges, according to the charging documents.
Wall Street professionals and others repeatedly traded on material, nonpublic information based on tips by insiders at UBS and Morgan Stanley, earning millions of dollars in illegal profits for themselves and for hedge funds with which they were affiliated. Two registered representatives of Assent LLC, a broker-dealer with offices in New York and New Jersey, accepted tens of thousands of dollars to conceal the UBS insider trading scheme. Finally, a broker at Banc of America Securities LLC allocated shares from initial public offerings and secondary offerings to a hedge fund in exchange for cash kickbacks.
The UBS Insider Trading Scheme
Guttenberg, an institutional client manager in UBS’s equity research department sold material, nonpublic information regarding upcoming upgrades and downgrades in UBS analysts’ securities recommendations to seasoned investors David Tavdy and Erik Franklin.
As the charging documents allege, investors regularly relied on UBS analysts’ ratings of public companies’ securities. As a result, changes in UBS analysts’ recommendations regarding a particular company’s securities were material to investors and often had a direct effect on the trading price of that company’s stock.
Prior to public release, UBS analysts’ upgrades and downgrades must be reviewed by the UBS Investment Review Committee ( IRC ). Guttenberg was a member of the IRC and was entrusted with UBS inside information.
Guttenberg sold the UBS inside information for hundreds of thousands of dollars to Tavdy and Franklin, who used the information to earn in excess of $4 million each. Tavdy and Franklin executed the profitable transactions in various brokerage accounts under their control, and Franklin also traded on behalf of hedge funds Lyford Cay Capital, Chelsea Capital and Q Capital Investment Partners L.P. with which Franklin was associated.
In addition to Tavdy and Franklin, the following individuals traded on the UBS inside information:
Mark Lenowitz, who worked with Tavdy at the Chelsey Capital and Q Capital hedge funds and who obtained the UBS inside information from Franklin;
Ken Okada and Robert Babcock, two former registered representatives at Bear Stearns & Co. who obtained the UBS inside information by observing Franklin’s trading in Bear Stearns accounts; and
David Glass, the operator of a trading firm called Jasper Capital, through which Tavdy also executed trades based on the UBS inside information.
The Morgan Stanley Insider Trading Scheme
The charging documents allege that Randi Collotta was an attorney in the global compliance division of Morgan Stanley. Moreover, Morgan Stanley provided financial services and investment banking advice and services to clients in connection with potential and actual corporate merger and acquisition transactions. In the course of that work, Morgan Stanley personnel, including Collotta, had access to material nonpublic information.
In violation of her duties to Morgan Stanley and its clients, Collotta provided material, nonpublic information regarding certain public companies’ planned merger and acquisition activities including information concerning the Morgan Stanley deals to her husband, Christopher Collotta, and an associate Marc Jurman.
Jurman traded on this inside information, and passed it on to Babcock, who himself both traded on that information and passed it to Franklin and Okada, who also traded on that information. Hundreds of thousands of dollars in profits from the scheme were passed from Franklin to Babcock to Jurman to the Collottas.
The Assent Bribery Scheme
Assent LLC was a brokerage firm that maintained the Jasper Capital account through which Tavdy and Glass executed trades based on the UBS inside information. The charging documents allege that in August 2006, Samuel W. Childs Jr., and Laurence McKeever, two brokers at Assent LLC, agreed to conceal Tavdy and Glass’s trading, based on the UBS inside information from higher-level management at Assent, in exchange for payments from Glass and Tavdy. The charging documents allege that, as part of this deal, Glass agreed to pay approximately $100,000 to Childs and approximately $50,000 to McKeever, and that Glass delivered a total of $30,000 to both Childs and McKeever in $10,000 installments between August and November 2006.
The Banc of America Securities Kickback Scheme
Between late 2005 and October 2006, Paul Risolli, a registered representative at Banc of America Securities, allocated shares of initial public offerings and secondary offerings to Q Capital, Franklin’s hedge fund, in exchange for cash kickbacks. Q Capital earned at least $160,000 in profits by selling shares from the allocations on the secondary market; Franklin paid Risolli at least $9,500 as part of the scheme.
U.S. Attorney Garcia, a member of President Bush’s Corporate Fraud Task Force, praised the efforts of the FBI and thanked the SEC for its assistance in the investigation. U.S. Attorney Garcia also noted that the investigation is continuing. Assistant U.S. Attorney Andrew Fish is in charge of the prosecutions.
This story was released on 2007-03-05. Please make sure to visit the official company or organization web site to learn more about the original release date. See our disclaimer for additional information.