Insider Trading And Hedge Funds – 4 Plead Guilty And Others Charged With Fraud – UBS And Morgan Stanley Employees Allegedly Invo

Insider Trading And Hedge Funds – 4 Plead Guilty And Others Charged With Fraud – UBS And Morgan Stanley Employees Allegedly Involved

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(Best Syndication) The U.S. Security and Exchange Commission (SEC) charged 14 defendants from UBS Securities LLC and Morgan Stanley & Co for an insider trading scheme that allegedly netted more than $15 million in illegal insider trading profits on thousands of trades. The SEC alleges that the ring used stolen information from the firms.

The watch-dog agency is taking aim at hedge funds. SEC Chairman Christopher Cox said "Our action today is one of several that will make very clear the SEC is targeting hedge fund insider trading as a top priority."

According to an SEC statement, the scheme by eight Wall Street professionals, including a UBS research executive and a Morgan Stanley attorney, two broker-dealers and a day-trading firm, was quite sophisticated. The parties first met at Manhattan’s famed Oyster Bar, but then began using disposable cell phones, secret codes and cash kickbacks.

The SEC wants this crackdown to send a warning to others who may be considering such a scheme. SEC Enforcement Director Linda Chatman Thomsen said "Today's events should send a message to anyone who believes that illegal insider trading is a quick and easy way to get rich. No matter how clever you are, no matter how hard you try to avoid detection, you underestimate us at your peril."

Bloomberg News says that charges were brought against 13 individuals. Hedge funds were tipped off about new analyst ratings and secret takeover talks. “Incidents like this strengthen the hands of those who are urging greater scrutiny of hedge-fund activities and their sources of information,” according to David Becker, a former SEC general counsel now in private practice at Cleary Gottlieb Steen & Hamilton LLP in Washington.

One complaint is that the pay structure creates incentives for employees to trade non-public information. Hedge funds are private pools of capital that allow managers to participate substantially in gains on the money invested, according to the report by David Scheer of Bloomberg.

BusinessWeek (BW) broke the story involving the charges filed against a UBS employee. Since then they say the plot has thickened and “in all, nine people, including Mitchel Guttenberg, 41, a UBS executive director, and Randi Collotta, a former Morgan Stanley compliance officer, are facing an array of criminal or civil securities fraud charges. Four other people have already pleaded guilty to federal criminal charges including securities fraud, conspiracy, and bribery.”

This is the largest case in 20 years, according to BW. The case moved quickly because prosecutors received help from “cooperating witnesses”. Some of these witnesses recorded conversations with some of the defendants, according to people familiar with the case.

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Compiled by the Best Syndication Business News Staff




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