Fourteen Charged in Wall Street Insider Trading Scheme that Netted $15 Million

Federal authorities have broken up what they are referring to as the biggest insider-trading scam since the 1980s. The Wall Street scandal involved brokers at some of the top financial firms in the country and more than $15 million in illegal gains.

Fourteen people have been charged with insider trading, including current or former employees of UBS, Morgan Stanley and Bear Stearns, in addition to three hedge funds, two broker-dealers and two day traders. Thirteen face criminal charges, and four of them have already pleaded guilty. The other nine were scheduled to be arraigned in federal courts in New York and Florida.

Linda C. Thomsen, the chief of enforcement at the Securities and Exchange Commission (SEC), said the scheme was one of the most "pervasive Wall Street Insider trading rings since the days of Ivan Boesky and Dennis Levine." The investigation into allegations of insider trading was conducted by the FBI, the SEC and the U.S. Attorney in Manhattan.

In 2001, according to federal authorities, Mitchel S. Guttenberg, an executive director in the stock research department of UBS, told Eric R. Franklin - a friend - about upcoming upgrades/downgrades of stocks, which would affect stock prices. Mr. Franklin, during the past five years, has worked for a hedge fund at Bear Stearns, Chelsey Capital - another hedge fund, and Q Capital Investment Partners. He has also traded for his personal account and that of his wife's father.

Each Guttenberg and Franklin has their own friends they would provide stock tips to. Michael J. Garcia - U.S. Attorney in Manhattan - said the case was so complicated and the relationships so tangled that he used a large posterboard to fully explain the inner workings of the network.

In a separate scheme, Randi Callotta, a lawyer at Morgan Stanley, is accused about leaking information regarding upcoming mergers and acquisitions in return for a share of illegal profits. She and her husband - a private practice lawyer - also shared her info with a broker in Florida - Marc Jurman - who then turned around and shared his profits with the couple.

A spokesman from Morgan Stanley - Mark Lake - says the company has "cooperated and are continuing to cooperate fully with authorities regarding a former employee who allegedly stole info from Morgan Stanley."

Similarly, a spokesman from UBS - Rohini Pragasam - told the New York Times that "UBS is assisting the authorities to the fullest extent possible in their investigation into the alleged actions of a single UBS employee." According to U.S. Attorney Garcia, both Morgan Stanley and UBS are being looked at as victims in the fraud.

www.businessweek.com/bwdaily/dnflash/content/mar2007/db20070301_941827.htm
www.nytimes.com/2007/03/02/business/02inside.1.html
www.forbes.com/business/2007/03/01/wall-street-scammers-biz-cx_lm_0301scammers.html