The US Securities and Exchange Commission announced last Thursday that it had 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 alleged 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 included three hedge funds, which were the biggest beneficiaries of the fraud.
According to the SEC, 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," warned SEC Enforcement Director Linda Chatman Thomsen.
She continued:
"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 added:
"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."
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