US authorities announce the indictment of 13 people, including two layers, on insider trading charges.
A New York U.S. Attorney’s Office recently announced the indictment of 13 people on insider trading charges. The indictments allege that the defendants participated in two insider trading rings.
The tipper in the larger of the two insider trading schemes was allegedly Mitchel Guttenberg, a manager in the equity research group at UBS Securities, who provided tips about recommendations by UBS analysts. Prosecutors allege that Mr. Guttenberg sold information directly to two traders who have pleaded guilty to insider trading. One of these traders managed hedge funds, while the other was a trader for two small broker-dealers. The two in turn were tipping another hedge fund manager, a day trader, and brokers. Prosecutors also brought charges against two brokerage employees who helped conceal trading activity, as well as a Bank of America Securities broker who received a kickback for placing initial public offering shares with one of the insider’s hedge funds.
Among the inside information provided by Mr. Guttenberg was that UBS planned to downgrade the stocks of Caterpillar Inc. and upgrade those of Goldman Sachs Group Inc. The tippees then shorted the stocks to be downgraded, i.e. they borrowed shares of the stocks to be downgraded from a broker with the expectation that they would fall in value, sold them on the open market, taking a so-called short position, and then waited for the stock price to fall and bought it for less than they sold it, thus making a profit. Correspondingly, the tippees accumulated those stocks that were to be upgraded.
Randi Collotta, a former compliance lawyer in Morgan Stanley’s global compliance group, fed the second ring. Ms. Collotta passed on non-public information about mergers and acquisitions transactions on which the investment bank was advising. The tippees included her husband, also a lawyer, and his broker friend. The broker in turn tipped off another broker who also participated in the UBS ring. Ironically, Ms. Collotta’s duties at Morgan Stanley included ensuring that confidential deal information was maintained in accordance with both federal regulations and the investment bank’s policies. Among other deals, she tipped off her ring about Johnson & Johnson’s unsuccessful bid for Guidant Corp.; and Adobe Systems Inc.’s 2005 acquisition of Macromedia Inc.
According to the Securities and Exchange Commission, which filed a civil complaint in the matter, the participants in the UBS ring made at least $14 million in profits from trading on inside information, while the participants in the Morgan Stanley scheme earned at least $600,000.
Each defendant faces multiple counts of securities fraud, which carry a maximum prison term of 20 years per offence, as well as fines and disgorgement of trading profits. Four defendants have already pleaded guilty.
Share