The U.S. Attorney’s Office announced the unsealing of criminal actions against a dozen individuals for allegedly stealing and trading on inside information from Morgan Stanley and UBS Securities, LLC, two Wall Street brokerage firms. The SEC also filed charges against these individuals in a separate civil case.
Former Morgan Stanley attorney Randi Collotta and former UBS Securities LLC executive Mitchell Guttenberg are two of the individuals out of more than a dozen people being charged by the U.S. Attorney’s Office for two bribery schemes and two insider trading schemes. Participants made over $8 million in illegal trading profits. U.S. Attorney Michael Garcia says all of the criminal defendants are in custody. Four of them have pleaded guilty.
Garcia said that the defendants violated the trust that had been given to them, made money illegally, and took extensive measures to hide their alleged illegal actions. Concealment measures included secret meetings, paying cash kickbacks, and communicating in code using disposable cell phone.
The SEC says that they have charged 3 entities and 11 individuals—the alleged misconduct earning the defendants over $15 million in illegal trading profits from thousands of trades. The SEC called the case "one of the most pervasive Wall Street insider trading rings since the days of Ivan Boesky and Dennis Levine." Lawyers, registered representatives, hedge fund portfolio manages, and compliance personnel are among those charged in the SEC case.
Morgan Stanley says that they are angered that a former employee allegedly stole certain confidential information, which was used in the alleged insider trading scheme. The firm has promised to cooperate fully with authorities.
According to the US Attorney’s Office, Morgan Stanley attorney Randi Collotta allegedly provided the non-public information about upcoming acquisitions and mergers to her husband Christopher and to longtime friend Marc Jurman. Jurman traded on the confidential information and offered the same information to Robert Babcock, a former Bear Stearns & Co registered representative, who also traded using the information, then passing it on to Erik Franklin (a Wall Street trader) and Ken Okada (also a former registered Bear Stearns & Co. representative). Profits were in the hundreds of thousands of dollars. Franklin, Jurman, Babcock, and David Glass, who ran the Jasper Capital LLC trading firm, have all pleaded guilty—Franklin to conspiracy, bribery and securities fraud, and Jurman, Babcock, and Glass to conspiracy and securities fraud. The other criminal defendants face securities fraud, conspiracy, making false statements, and commercial bribery charges.
In the UBS scheme, UBS Securities LLC executive Mitchel Guttenberg is accused of selling non-public material on upcoming downgrades and upgrades in securities recommendations that were made by UBS analysts for hundreds of thousands of dollars to Erik Franklin and David Tavdy, two Wall Street traders. The two men worked at different hedge funds and/or brokerage firms and used the information to carry out profitable transactions in various brokerage accounts that they were in charge of. Both men allegedly made more than $4 million each. Tavdy, Franklin, Franklin’s co-worker Mark Lenowitz, Babcock, Glass, and Okada also traded on the UBS information.
Laurence McKeever and Samuel Childs, both former registered representatives of Assent LLC, a broker dealer, face charges of accepting tens of thousands of dollars in bribes to cover up the UBS insider trading scheme that they learned about from Glass. A Banc of America representative, Paul Risoli, faces charges of allocating initial public offerings shares and secondary offerings to Q Capital Investment Partner LP—a hedge fund—in exchange for $10,000 in cash kickbacks. The hedge fund made at least $160,000 by selling shares from these allocations.
The SEC case names nearly all of the criminal defendants, as well as Andrew Srebnik, a former Bear Stearns stockbroker, a day trading firm, and two hedge funds in its civil securities fraud action. DSJ International Resources Ltd., Q Capital, and Jasper Capital are the entity defendants that have been named in the case.
The SEC says that Franklin, Guttenberg, Tavdy, and their tippees illegally made close to $14 million in the UBS scheme. In the Morgan Stanley scheme, Jurman, the Collottas, and their tippees allegedly made over $600,000 in unlawful profits.
The SEC is asking that the court order disgorgement plus prejudgment interest, permanent injunctions, and civil penalties. The investigation is ongoing.
If you are an investor who has lost money because of an insider trading scheme or because of securities fraud, Shepherd Smith and Edwards can help you file a claim to recover your losses. Contact Shepherd Smith and Edwards today for your free consultation.
Related Web Resources:
SEC Accuses Workers at UBS, Morgan Stanley Of Insider Trading, CNBC.com, March 1, 2007
Insider trading still doesn't pay, Marketplace, March 1, 2007
