The SEC charged 14 people in March in what one SEC official described as the biggest insider-trading scheme “since the days of Ivan Boesky and Dennis Lavine.” Netting more than $15 million in illicit profits on thousands of trades, the defendants used information stolen from UBS Securities and Morgan Stanley. The SEC complaint implicates hedge funds, lawyers (one compliance attorney), registered reps, traders and one research executive.
The scheme, which involved passing on stock-analyst ratings, was allegedly hatched by UBS research executive Michael Guttenberg as a way for him to repay a debt to another defendant, Erik Franklin, a portfolio manager at Lyford Cay hedge fund. Using coded text messages and disposable cell phones, Guttenberg sold tips on stock-rating changes to Franklin and his associate, David Tavdy.
Beginning in 2002, the pair allegedly racked up $4 million in profits for trades in their own accounts and for hedge funds, Lyford Cay, Q Capital and Chelsey Capital. Others soon got in on the scheme, including Randi Collotta, an attorney in Morgan Stanley's global compliance division. Collotta passed the tips to her husband, Christopher Collotta, and another attorney, Marc Jurman, who then passed the tips to the other defendants. Many of the defendants have pled guilty and face jail terms ranging from 20 to 40 years in some cases.
Ponzi Scheming Manager
William Sirls, a former Wachovia branch manager in Toledo, Ohio, was charged in early March with stealing between $17 million and $40 million from roughly 45 investors in a classic Ponzi scheme, according to the Department of Justice. The attorney for two former clients who lost money in the scam alleges other Wachovia employees were involved and that the current Toledo branch manager, Randall Hunt, profited from the scam as well.
According to documents filed by the U.S. Attorney, between January 2000 and September 2006, Sirls sold two phony investment scams, one involving “busted trades” — when a customer orders the purchase of stock through a brokerage firm, but then doesn't pay for it, allowing the firm to sell it for a profit — and “builder-discounted real estate” — a scam that suggests the remaining unsold homes in a development can be had for a discount to their real value. Sirls turned himself in last September to the U.S. Attorney and, according to published reports, intends to plead guilty to mail fraud and money laundering.