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UBS executive implicated in trading scam

Wall Street insider trading was a "brazen scheme" Keystone

An executive at Switzerland's largest bank, UBS, has been accused of taking part in a multi-million dollar illegal insider trader ring in the United States.

This content was published on March 2, 2007 - 17:08

The US authorities have charged UBS executive director Mitchel Guttenberg with giving Wall Street traders advance warning of stock upgrades and downgrades in exchange for kickbacks over a period of six years.

Guttenberg tipped off at least two traders who funnelled the information to other parties to fuel "thousands of illegal trades" and $14 million (SFr17.14 million) in "illicit profits", according to the US Securities and Exchange Commission (SEC) that regulates Wall Street.

The 41-year-old is alleged to have covered his tracks by sending coded messages on disposable mobile telephones and taking his cut of the profits in cash.

Guttenberg serves on UBS's Investment Review Committee, which approves analyst recommendations to upgrades or downgrade company shares. The sensitive information often affects share prices once it is made public.

The SEC contends that New York-based Guttenberg initiated the scheme in 2001 so he could pay off debts to a trader, who has also been charged with insider trading.

"UBS scheme"

In total, 14 people now face charges in relation to two alleged insider trading rings, including employees of Morgan Stanley and Bear Stearns. The "UBS scheme", as it has been called by the SEC, was by far the bigger of the two.

"In terms of dollar count, this case is not as high as the famed insider trading cases of the 1980s. But what makes this case so important is its pervasiveness, the way it cut its way across top tier firms, hedge funds and other financial institutions," SEC spokesman John Nester told swissinfo.

"It was a brazen scheme in which people entrusted to protect the investors' interests violated that trust to line their own pockets."

If found guilty, Guttenberg could be disbarred from practising on Wall Street, be made to pay back the money he illegally gained and an additional fine of up to three times that amount.

The SEC has not stated how much money he made personally but prosecuting attorney Jane Peterson told swissinfo that he could be held legally accountable for all the profits made by the other ring members as he was the original source of the information.

Guttenberg was arrested by officers from the Department of Justice on Thursday and faces criminal charges that carry maximum sentences that range from 15 to 90 years.

"UBS is assisting the authorities to the fullest extent possible in their investigation into the alleged actions of a single UBS employee. The US Attorney has described UBS as a victim of this alleged scheme," the bank said in a statement.

"UBS is committed to safeguarding the integrity of its proprietary information and has rigorous procedures in place to avoid any theft or misuse. Any violation of these procedures is taken extremely seriously."

A spokeswoman declined to comment on reports that Guttenberg had been placed on unpaid leave.

swissinfo, Matthew Allen with agencies

In brief

The charges relating to Mitchel Guttenberg date to a six-year period between 2001 and 2006.

He was allegedly part of an insider trading scheme that consisted of eight securities industry professionals, three hedge funds, two broker dealers and a day trading firm.

Some of these people were also allegedly involved in a second ring, the "Morgan Stanley scheme" that netted some $600,000 (SFr735,000) in illicit profits. Guttenberg is not directly linked to this scheme, but the SEC claims some of his tips were used by the members.

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