USB GC Pays $6.5M to Settle Insider Trading

From our colleagues at The American Lawyer's Litigation Daily

 

Edited by Andrew Longstreth:

Beware the E-Mail Trail: Former UBS General Counsel Pays $6.5 Million to
Settle Insider Trading Allegations

It wasn't just the market that took another blow to the gut yesterday. So
did the reputation of David Aufhauser, the former UBS general counsel for
the Americas, who agreed to pay $6.5 million to end an insider-trading
investigation of his sale of personal holdings in the auction-rate
securities market.  

In the deal announced yesterday by New York Attorney
General Andrew Cuomo, Aufhauser also agreed to some stiff penalties. For two
years, he will not practice law in New York, will not serve as a director or
officer of any public company, and will not participate in the securities
industry.While thousands of UBS customers were kept in the dark as the auction rate
market began to collapse, David Aufhauser, one of the company's top
executives, acquired insider information and quietly dumped his personal
holdings of auction rate securities," said Cuomo in a statement.
Aufhauser's attorney, F. Joseph Warin of Gibson, Dunn & Crutcher, referred
us to a statement by a spokesperson for Aufhauser, who tried to put a
positive spin on the settlement. "We are pleased to have reached this
amicable agreement and avoided a potentially lengthy litigation," the
spokesperson said. "Today's settlement will allow [Aufhauser] to close the
door on what was an unfortunate incident and move on with his life."
As part of the deal, Aufhauser and Warin signed a consent decree that lays
out the case against the onetime UBS GC. Not surprisingly, bad e-mails are
involved. According to the document, Aufhauser was on an Amtrak Acela train
from New York to Washington, D.C., last December, when he read an e-mail
from one of his colleagues that said UBS's auction-rate securities market
was falling apart. Just minutes later, Aufhauser e-mailed his broker and
instructed him to sell off his holdings. "I want to get out of ars [auction
rate securities]," he wrote. "Let's talk on Monday."
When Monday came, according to the consent decree, Aufhauser once again told
his broker that he wanted out of the auction-rate securities market. Later
that night, at a party at the New York Museum of Natural History, Aufhauser
mentioned to UBS's deputy CEO that he had sold his auction-rate holdings.
But his colleague thought, given Aufhauser's position as a high-ranking UBS
lawyer, that the statement was "a joke." The deputy CEO later testified that
after he pressed Aufhauser, Aufhauser backed off the statement. More than a
month later, after Aufhauser learned that other executives had also sold off
their auction-rate securities in anticipation of the market's collapse, he
instructed his broker to buy back the same securities he had sold in
December.

Note: Click here to read version with live links. (We had some cut-and-paste issues today)  -- Mon