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Wall Street insider trading ring busted, 13 charged
ALSO POSTED THIS STORY IN MESS HALL.
March 2, 2007
13 Charged in Insider Trading Ring
By JENNY ANDERSON
Thirteen people were accused today of taking part in a major insider trading ring, including a Morgan Stanley compliance official, a UBS research executive and traders for hedge funds and brokerage firms.
Nine of the defendants have been arrested, and four have pleaded guilty to charges ranging from securities fraud, conspiracy to commit securities fraud and bribery.
Linda C. Thomsen, chief of enforcement at the Securities and Exchange Commission, described the scheme as one of the most “pervasive Wall Street insider trading rings since the days of Ivan Boesky and Dennis Levine.”
The investigation was conducted by the Federal Bureau of Investigation, the S.E.C. and the office of the United States attorney in Manhattan.
The S.E.C. accused 14 people of making illicit profits totaling more than $15 million, while the federal criminal charges cite illicit profits of $8 million from 13 individuals.
Officials said the case involved two different schemes that were linked through one hedge fund trader.
Federal authorities say that starting in 2001, Mitchel S. Guttenberg, a 41-year old executive director in the stock research department of UBS, tipped a friend, Erik R. Franklin, about upcoming upgrades and downgrades of stocks, which was information that would move the price of the stocks. Mr. Franklin, at different times during the five-year scheme, worked for a hedge fund at Bear Stearns called Lyford Cay Capital, Chelsey Capital, a hedge fund, and Q Capital Investment Partners, as well as trading for his own personal account and that of his father-in-law.
The friends used disposable cellphones and secret codes to try and cover up their activities, the S.E.C. complaint says.
The ties went further than the two friends: each had his own network of tippees and the case was so complex that the United States attorney in Manhattan, Michael J. Garcia, used a large posterboard to explain the inner workings.
For example, Mr. Guttenberg, also passed the tips to David M. Tavdy, 38, a proprietary trader at Andover Brokerage and Jasper Capital, according to investigators. Mr. Franklin, a hedge fund trader, tipped Mark E. Lenowitz, 43, who worked for Chelsey Capital, a hedge fund and was a limited partner at Q Capital Fund.
In a separate scheme, Randi Collotta, a 30-year-old lawyer in the global compliance department at Morgan Stanley, is accused of doling out information about upcoming mergers and acquisitions in return for a share of illegal profits. She worked with her husband, a lawyer in private practice, and they tipped off Marc Jurman, a broker in Florida who shared his profits with the Collottas, according to investigators.
Mr. Jurman in turn passed the information to Robert D. Babcock and Ken Okada, employees at Bear Stearns.
Mark Lake, a Morgan Stanley spokesman, said, “We have cooperated and are continuing to cooperate fully with authorities regarding a former employee who allegedly stole info from Morgan Stanley.”
A UBS spokeswoman, Rohini Pragasam, said, “UBS is assisting the authorities to the fullest extent possible in their investigation into the alleged actions of a single UBS employee.” Mr. Garcia described Morgan Stanley and UBS as victims in the schemes.
Representatives from Bear Stearns could not be immediately reached for comment.
Four of the individuals have pleaded guilty: Mr. Franklin, Mr. Babcock, Mr. Jurman and David A. Glass, 32, who is the owner of Jasper Capital. He is alleged to have traded on illegal information in the UBS scheme.
A lawyer for Mr. Franklin did not immediately return calls for comment. Mr. Babcock’s lawyer declined to comment.
Benjamin Brafman, a lawyer for Mr. Glass, said: “Mr. Glass is a very intelligent, fundamentally honest young man who unfortunately used some very bad judgment but made the decision to accept full responsibility for his conduct at a very early stage of the proceeding.” He declined to comment further.
Lilly Ann Sanchez, a lawyer for Mr. Jurman, said: “We aimed to resolve this case expeditiously. Mr. Jurman is a very minor player in the overall conspiracy.”
The most valuable commodity I know of is information
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