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Thirteen people, including current and former employees of Morgan Stanley, UBS and Bear Stearns, have been charged with criminal securities fraud in what US authorities said on Thursday was “one of the most pervasive Wall Street insider trading rings since the days of Ivan Boesky”.
The ring capitalised on two key sources of inside information, according to US Attorney Michael Garcia.
Randi Collotta, a Morgan Stanley compliance officer, allegedly passed on news of pending mergers and acquisitions from 2004 to 2005. Mitchel Guttenberg, a UBS executive director, allegedly gave traders for several hedge funds advance warning of stock upgrades and downgrades for more than six years.
The stream of conspirators who passed on or used the inside information eventually grew to include 14 people, including eight Wall Street professionals, two broker-dealers and three hedge funds, including Lyford Cay, a Bear Stearns vehicle, the Securities and Exchange Commission said.
The SEC estimated that the participants netted more than $15m. If convicted, the defendants face potential maximum sentences ranging from 15 to 90 years, depending on their alleged level of involvement.
Four people – including Erik Franklin, 39, and Robert Babcock, 33, both former Bear employees – have pleaded guilty to criminal charges. Nine others, including Mr Guttenberg and Mrs Collotta and her husband, Christopher, were arrested early on Thursday.
“Insider trading is more than just peeking into your opponent’s hand in a friendly poker game. It’s not just unethical. It is a felony,” said Teresa Carlson, acting FBI special agent in charge in New York.
The two insider trading schemes were separate, but some of the same investors – including Mr Franklin and Mr Babcock – benefited from both, Mr Garcia said. His office also brought a third Wall Street case today, charging Paul Risoli, a Bank of America employee, with taking kickbacks in exchange for allocating initial public offering shares to Mr Franklin.
Morgan Stanley and UBS both said they were co-operating with the investigation. UBS said Mr Guttenberg had been placed on unpaid leave. Mrs Collotta left Morgan Stanley of her own volition more than a year ago.
“Some defendants may have thought they were flying ‘under the radar’ by making modest profits on individual transactions, secure in the knowledge that, over hundreds of tips, they would reap millions,” said Linda Chatman Thomsen, the SEC enforcement director, who also compared the schemes to those of Mr Boesky, a central figure in the insider trading scandals of the late 1980s.
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