Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, October 7, 2008

Former Senior UBS Lawyer Settles New York Charges of Selling ARS on Inside Information

New York Attorney General Andrew M. Cuomo announced a $6.5 million settlement with David Aufhauser, a top executive at UBS, regarding his insider trading of auction rate securities.  Today’s agreement will settle allegations that Aufhauser, former General Counsel of UBS AG and General Counsel of the Investment Bank at UBS AG, sold his personal holdings of auction rate securities after acquiring insider information about UBS’s collapsing auction rate securities market. Under the agreement secured by Cuomo, Aufhauser will pay $6.5 million to New York State. The payment includes his 2008 UBS discretionary incentive compensation of $6,000,000 plus an additional $500,000 as civil penalties.

Aufhauser further agreed that for two years following the settlement:

Aufhauser shall not be employed by or associated with a broker dealer, investment advisor, hedge fund or other participant in the securities industry;
Aufhauser shall not serve as a director or officer of any public company;
Aufhauser shall not practice law in the State of New York.

According to the AG, while traveling on the Amtrak Acela train from New York to Washington in the early evening hours of Friday, December 14, 2007, Aufhauser opened an e-mail sent earlier in the day by UBS’s Chief Risk Officer containing material, non-public information concerning UBS’s position and intentions in the auction rate securities market.    In the e-mail, the Chief Risk Officer outlined a series of grave problems with respect to UBS’s auction rate securities market. Aufhauser immediately forwarded it to two other UBS lawyers requesting that a meeting be arranged to discuss these issues.  A few minutes later, while still on the train, Aufhauser e-mailed his financial advisor directing his financial advisor to sell all of his auction rate securities.  Aufhauser instructed his financial adviser: “I want to get out of arcs [auction rate certificates].  Let’s talk on Monday.”

On Monday, December 17, 2007, Aufhauser reiterated his instruction to his broker to sell his auction rate securities, and his broker then sold Aufhauser’s $250,000 worth of auction rate securities on December 18 and 21, 2007.

Aufhauser’s trading and conduct violated Section 352-c of the General Business Law.  Aufhauser committed fraud in connection with a securities transaction by misappropriating confidential information for securities trading purposes in breach of a duty owned to the source of the information.

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