Insider Trading Figure Gets 6.5 Years

By James Armstrong, Hedge Fund Correspondent

By James Armstrong, Hedge Fund Correspondent

A federal court has handed down a six-and-a-half-year sentence to one of the key figures in the biggest insider-trading scheme in recent years.

Judge Deborah Batts on Monday ordered former UBS executive Michael Guttenberg to pay $15.8 million in addition to serving the stiff sentence. Guttenberg pleaded guilty earlier this year to conspiracy and securities fraud.

Guttenberg was nabbed along with a dozen others last year over an insider-trading scheme involving hedge funds Q Capital and Chelsey Capital. Authorities claimed individuals at UBS Securities and Morgan Stanley passed on privileged information to the funds, attempting to hide their tracks through secret codes, disposable cell phones and shady meetings at Manhattan restaurants.

According to the Securities and Exchange Commission, Guttenberg, who was then an executive director in the equity research department at UBS, supplied information to hedge fund manager Erik Franklin and trader David Tavdy in exchange for a share of their profits. The two men allegedly passed the information in turn on to others.

The SEC says Guttenberg informed his accomplices of upgrades and downgrades by UBS before the firm made them public. They could then trade the securities ahead of any announcements by UBS and profit from a predictable rise or fall in price. Both Franklin and Tavdy pleaded guilty earlier, but neither has been sentenced.

Guttenberg's sentence is one of the harshest for insider trading given out in recent years. In 2003, ImClone founder Sam Waksal was sentenced to seven years and three months for breaking insider-trading rules and other laws.

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Posted on Nov. 4, 2008