Press Release: SEC Charges 14 in Wall Street Insider Trading Ring

SEC Charges 14 in Wall Street Insider Trading Ring Defendants Include Hedge Funds, Lawyers and Professionals at UBS, Bear Stearns, and Morgan Stanley FOR IMMEDIATE RELEASE 2007-28 Washington, D.C., March 1, 2007 - The U.S. Securities and Exchange Commission today charged 14 defendants in a brazen insider trading scheme that netted more than $15 million in illegal insider trading profits on thousands of trades, using information stolen from UBS Securities LLC and Morgan Stanley & Co., Inc. The SEC complaint alleges that eight Wall Street professionals, including a UBS research executive and a Morgan Stanley attorney, two broker-dealers and a day-trading firm participated in the scheme. The defendants also include three hedge funds, which were the biggest beneficiaries of the fraud. "Our action today is one of several that will make very clear the SEC is targeting hedge fund insider trading as a top priority," said SEC Chairman Christopher Cox. The scheme involved unlawful trading ahead of upgrades and downgrades by UBS research analysts and corporate acquisition announcements involving Morgan Stanley's investment banking clients. The ringleaders of the UBS part of the scheme went to great lengths to hide their illegal conduct, first through a clandestine meeting at Manhattan's famed Oyster Bar and eventually the use of disposable cell phones, secret codes and cash kickbacks before the scheme unraveled. "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," said SEC Enforcement Director Linda Chatman Thomsen. "Illegal insider trading undermines the level playing field that is the hallmark of our capital markets. It is, however, particularly pernicious when Wall Street insiders — who derive their already substantial livelihood from the capital markets and those markets' investors — shamelessly compromise the markets' integrity and investors' trust for a quick buck." SEC Associate Director of Enforcement Scott W. Friestad said, "Today's action is one of the largest SEC insider trading cases against Wall Street professionals since the days of Ivan Boesky and Dennis Levine. It involves fraud by employees of some of the biggest brokerage and investment banking firms in the country. We will do everything possible to make sure that, in addition to any other remedies or sanctions imposed, none of these individuals ever works in the securities industry again." According to the SEC complaint, Mitchel Guttenberg, an executive director in the equity research department at UBS, provided material, nonpublic information concerning upcoming UBS analyst upgrades and downgrades to traders Eric Franklin and David Tavdy, in exchange for sharing in the illicit profits from their trading on that information. Franklin and Tavdy illegally traded on this inside information personally, for the hedge funds Franklin managed, and for the registered broker-dealers where Tavdy was a trader. Franklin and Tavdy also had a network of downstream tippees who illegally traded on this inside information, including a third hedge fund, a day-trading firm, and three registered representatives at Bear, Stearns & Co., Inc. Several of those who illegally traded on the UBS information, and others, also traded ahead of corporate acquisition announcements using information stolen from Morgan Stanley. According to the complaint, Randi Collotta, an attorney in the global compliance department of Morgan Stanley, together with her husband, Christopher Collotta, an attorney in private practice, provided material, nonpublic information concerning upcoming corporate acquisitions involving Morgan Stanley's investment banking clients to Marc Jurman, a registered representative at a Florida broker-dealer. Jurman then traded on this information and shared his illicit profits with the Collottas. Jurman also tipped Robert Babcock, a registered representative at Bear Stearns, who traded on the information and tipped Franklin, a hedge fund managed by Franklin, and another registered representative at Bear Stearns. As a result of the conduct described in the complaint, the Commission alleges that each named defendant violated the antifraud provisions of the federal securities laws. The Commission's complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of civil monetary penalties. The Commission's complaint names the defendants and includes the allegations set forth below: Mitchel S. Guttenberg, age 41, who is a registered representative at UBS, and is an executive director and institutional client manager in the firm's equity research department. Guttenberg illegally tipped material, nonpublic information in connection with the UBS part of the scheme, in exchange for sharing in the illicit trading profits. Erik R. Franklin, age 39, who, at times during the relevant period, was a portfolio manager for the Lyford Cay hedge fund and an employee of Bear Stearns in New York, N.Y., an analyst for the Chelsey Capital hedge fund in New York, N.Y., and a portfolio manager for the Q Capital hedge fund. Franklin illegally traded on and tipped material, nonpublic information from UBS and Morgan Stanley. David S. Tavdy, age 38, who, at times during the relevant period, was a proprietary trader and registered representative at Andover Brokerage LLC in New York, N.Y.; a proprietary trader and registered representative at Assent, a broker dealer in New York, N.Y., and a trader at Jasper Capital. Tavdy illegally traded on and tipped material, nonpublic information in connection with the UBS part of the scheme. Mark E. Lenowitz, age 43, who, at times during the relevant period, was a portfolio manager for the Chelsey Capital hedge fund in New York, N.Y., and a limited partner in the Q Capital hedge fund. Lenowitz illegally traded on material, nonpublic information in connection with the UBS part of the scheme. Robert D. Babcock, age 33, who is a registered representative at Suntrust Capital Markets, Inc. and, during the relevant time period, was a registered representative at Bear Stearns in New York, N.Y., and was associated with the Lyford Cay hedge fund. Babcock illegally traded on and/or tipped material, nonpublic information from UBS and Morgan Stanley. Andrew A. Srebnik, age 35, who is a registered representative at Jefferies & Company, Inc. and, during the relevant time period, was a registered representative at Bear Stearns in New York, N.Y. Srebnik illegally traded on material, nonpublic information in connection with the UBS part of the scheme. Ken Okada, age 31, who is a registered representative at Cathay Financial, Inc. and, during the relevant time period, was a registered representative with Bear Stearns in New York, N.Y. Okada illegally traded on and/or tipped material, nonpublic information from UBS and Morgan Stanley. David A. Glass, age 32, who is the owner and president of Jasper Capital and, at times during the relevant period, also was a registered representative at Assent. Glass traded on material, nonpublic information in connection with the UBS part of the scheme. Randi E. Collotta, age 30, who is an attorney and the Director of Securities Operations at The Garden City Group, Inc. and, during the relevant time period, was an attorney in the global compliance department of Morgan Stanley in New York, N.Y. Randi Collotta illegally tipped material, nonpublic information she stole from Morgan Stanley, in exchange for sharing in the illicit trading profits. Christopher K. Collotta, age 34, who is an attorney in private practice. Christopher Collotta illegally tipped material, nonpublic information that his wife, Randi Collotta, stole from Morgan Stanley, in exchange for sharing in the illicit trading profits. Marc R. Jurman, age 31, who, at times during the relevant period, was a registered representative at the Boca Raton, Fla., branch office of Marlins Capital, LLC, and a registered representative at the Boca Raton, Fla., branch office of Finance 500, Inc. Jurman traded on and tipped material, nonpublic information from Morgan Stanley. Q Capital Investment Partners, LP, which is a Delaware limited partnership with offices in Fort Lee, N.J. During the relevant time period, Q Capital operated as a hedge fund. Q Capital traded on material, nonpublic information from UBS and Morgan Stanley. DSJ International Resources Ltd., which does business as Chelsey Capital, and is a New York corporation with offices in New York, N.Y. During the relevant time period, Chelsey Capital operated as a private hedge fund. Chelsey Capital traded on material, nonpublic information in connection with the UBS part of the scheme. Jasper Capital LLC, which is a New York limited liability company owned by Glass. During the relevant time period, Jasper Capital operated as a day-trading firm from the offices of Assent in New York, N.Y. Jasper Capital traded on material, nonpublic information in connection with the UBS part of the scheme. The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. The Commission's investigation is ongoing. # # # For more information, contact: Scott W. Friestad Associate Director U.S. Securities and Exchange Commission (202) 551-4962 Robert B. Kaplan Assistant Director U.S. Securities and Exchange Commission (202) 551-4969 Additional materials: Litigation Release No. 20022 http://www.sec.gov/news/press/2007/2007-28.htm Home | Previous Page Modified: 03/01/2007

SEC Charges 14 in Wall Street Insider Trading Ring Defendants Include Hedge Funds, Lawyers and Professionals at UBS, Bear Stearns, and Morgan Stanley FOR IMMEDIATE RELEASE 2007-28 Washington, D.C., March 1, 2007 - The U.S. Securities and Exchange Commission today charged 14 defendants in a brazen insider trading scheme that netted more than $15 million in illegal insider trading profits on thousands of trades, using information stolen from UBS Securities LLC and Morgan Stanley & Co., Inc. The SEC complaint alleges that eight Wall Street professionals, including a UBS research executive and a Morgan Stanley attorney, two broker-dealers and a day-trading firm participated in the scheme. The defendants also include three hedge funds, which were the biggest beneficiaries of the fraud. "Our action today is one of several that will make very clear the SEC is targeting hedge fund insider trading as a top priority," said SEC Chairman Christopher Cox. The scheme involved unlawful trading ahead of upgrades and downgrades by UBS research analysts and corporate acquisition announcements involving Morgan Stanley's investment banking clients. The ringleaders of the UBS part of the scheme went to great lengths to hide their illegal conduct, first through a clandestine meeting at Manhattan's famed Oyster Bar and eventually the use of disposable cell phones, secret codes and cash kickbacks before the scheme unraveled. "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," said SEC Enforcement Director Linda Chatman Thomsen. "Illegal insider trading undermines the level playing field that is the hallmark of our capital markets. It is, however, particularly pernicious when Wall Street insiders — who derive their already substantial livelihood from the capital markets and those markets' investors — shamelessly compromise the markets' integrity and investors' trust for a quick buck." SEC Associate Director of Enforcement Scott W. Friestad said, "Today's action is one of the largest SEC insider trading cases against Wall Street professionals since the days of Ivan Boesky and Dennis Levine. It involves fraud by employees of some of the biggest brokerage and investment banking firms in the country. We will do everything possible to make sure that, in addition to any other remedies or sanctions imposed, none of these individuals ever works in the securities industry again." According to the SEC complaint, Mitchel Guttenberg, an executive director in the equity research department at UBS, provided material, nonpublic information concerning upcoming UBS analyst upgrades and downgrades to traders Eric Franklin and David Tavdy, in exchange for sharing in the illicit profits from their trading on that information. Franklin and Tavdy illegally traded on this inside information personally, for the hedge funds Franklin managed, and for the registered broker-dealers where Tavdy was a trader. Franklin and Tavdy also had a network of downstream tippees who illegally traded on this inside information, including a third hedge fund, a day-trading firm, and three registered representatives at Bear, Stearns & Co., Inc. Several of those who illegally traded on the UBS information, and others, also traded ahead of corporate acquisition announcements using information stolen from Morgan Stanley. According to the complaint, Randi Collotta, an attorney in the global compliance department of Morgan Stanley, together with her husband, Christopher Collotta, an attorney in private practice, provided material, nonpublic information concerning upcoming corporate acquisitions involving Morgan Stanley's investment banking clients to Marc Jurman, a registered representative at a Florida broker-dealer. Jurman then traded on this information and shared his illicit profits with the Collottas. Jurman also tipped Robert Babcock, a registered representative at Bear Stearns, who traded on the information and tipped Franklin, a hedge fund managed by Franklin, and another registered representative at Bear Stearns. As a result of the conduct described in the complaint, the Commission alleges that each named defendant violated the antifraud provisions of the federal securities laws. The Commission's complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of civil monetary penalties. The Commission's complaint names the defendants and includes the allegations set forth below: Mitchel S. Guttenberg, age 41, who is a registered representative at UBS, and is an executive director and institutional client manager in the firm's equity research department. Guttenberg illegally tipped material, nonpublic information in connection with the UBS part of the scheme, in exchange for sharing in the illicit trading profits. Erik R. Franklin, age 39, who, at times during the relevant period, was a portfolio manager for the Lyford Cay hedge fund and an employee of Bear Stearns in New York, N.Y., an analyst for the Chelsey Capital hedge fund in New York, N.Y., and a portfolio manager for the Q Capital hedge fund. Franklin illegally traded on and tipped material, nonpublic information from UBS and Morgan Stanley. David S. Tavdy, age 38, who, at times during the relevant period, was a proprietary trader and registered representative at Andover Brokerage LLC in New York, N.Y.; a proprietary trader and registered representative at Assent, a broker dealer in New York, N.Y., and a trader at Jasper Capital. Tavdy illegally traded on and tipped material, nonpublic information in connection with the UBS part of the scheme. Mark E. Lenowitz, age 43, who, at times during the relevant period, was a portfolio manager for the Chelsey Capital hedge fund in New York, N.Y., and a limited partner in the Q Capital hedge fund. Lenowitz illegally traded on material, nonpublic information in connection with the UBS part of the scheme. Robert D. Babcock, age 33, who is a registered representative at Suntrust Capital Markets, Inc. and, during the relevant time period, was a registered representative at Bear Stearns in New York, N.Y., and was associated with the Lyford Cay hedge fund. Babcock illegally traded on and/or tipped material, nonpublic information from UBS and Morgan Stanley. Andrew A. Srebnik, age 35, who is a registered representative at Jefferies & Company, Inc. and, during the relevant time period, was a registered representative at Bear Stearns in New York, N.Y. Srebnik illegally traded on material, nonpublic information in connection with the UBS part of the scheme. Ken Okada, age 31, who is a registered representative at Cathay Financial, Inc. and, during the relevant time period, was a registered representative with Bear Stearns in New York, N.Y. Okada illegally traded on and/or tipped material, nonpublic information from UBS and Morgan Stanley. David A. Glass, age 32, who is the owner and president of Jasper Capital and, at times during the relevant period, also was a registered representative at Assent. Glass traded on material, nonpublic information in connection with the UBS part of the scheme. Randi E. Collotta, age 30, who is an attorney and the Director of Securities Operations at The Garden City Group, Inc. and, during the relevant time period, was an attorney in the global compliance department of Morgan Stanley in New York, N.Y. Randi Collotta illegally tipped material, nonpublic information she stole from Morgan Stanley, in exchange for sharing in the illicit trading profits. Christopher K. Collotta, age 34, who is an attorney in private practice. Christopher Collotta illegally tipped material, nonpublic information that his wife, Randi Collotta, stole from Morgan Stanley, in exchange for sharing in the illicit trading profits. Marc R. Jurman, age 31, who, at times during the relevant period, was a registered representative at the Boca Raton, Fla., branch office of Marlins Capital, LLC, and a registered representative at the Boca Raton, Fla., branch office of Finance 500, Inc. Jurman traded on and tipped material, nonpublic information from Morgan Stanley. Q Capital Investment Partners, LP, which is a Delaware limited partnership with offices in Fort Lee, N.J. During the relevant time period, Q Capital operated as a hedge fund. Q Capital traded on material, nonpublic information from UBS and Morgan Stanley. DSJ International Resources Ltd., which does business as Chelsey Capital, and is a New York corporation with offices in New York, N.Y. During the relevant time period, Chelsey Capital operated as a private hedge fund. Chelsey Capital traded on material, nonpublic information in connection with the UBS part of the scheme. Jasper Capital LLC, which is a New York limited liability company owned by Glass. During the relevant time period, Jasper Capital operated as a day-trading firm from the offices of Assent in New York, N.Y. Jasper Capital traded on material, nonpublic information in connection with the UBS part of the scheme. The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. The Commission's investigation is ongoing. # # # For more information, contact: Scott W. Friestad Associate Director U.S. Securities and Exchange Commission (202) 551-4962 Robert B. Kaplan Assistant Director U.S. Securities and Exchange Commission (202) 551-4969 Additional materials: Litigation Release No. 20022 http://www.sec.gov/news/press/2007/2007-28.htm Home | Previous Page Modified: 03/01/2007