Ex UBS executive sentenced for insider trading

04 November 2008

In one of the biggest insider trading cases on Wall Street since the 1980s, Michael Guttenberg, a former institutional client manager in UBS' equity research department, has been sentenced to six and a half-years in prison and ordered to pay back $15.8 million he made in the scam for running an insider trading scheme involving several hedge funds.

The Federal authorities had accused Guttenberg, who was on the investment review committee of UBS in 2001, a position that gave him access to stock recommendations by analysts before the information was made public, of illegally tipping others to upcoming analyst stock upgrades or downgrades.

The Securities and Exchange Commission said that this privy information was given to two Wall Street traders, Erik Franklin and David Tavdy, in exchange for a cut in the profits they made from trading on that information. Erik Franklin and David Tavdy in turn cut more deals and gave tips to others who made money on this information.

The Securities and Exchange Commission dubbed this as a "serial insider trading ring," where the accused made illegal trades based on advance knowledge of changes in UBS Securities' ratings on a range of stocks.

According to Guttenberg, who admitted his guilt and showed remorse for his actions started off by cutting a deal with a friend whom he owed $25,000. For squaring this debt he passed on tips and also collected a cut from the profits. The friend who agreed to the deal, made millions over the next six years for himself and a couple of hedge funds he managed.

He continued to do this from 2001 to 2006 and was paid hundreds of thousands of dollars, while others who were involved in this insider trading made more than $17.5 million, prosecutors said.