Securities Law Prof Blog

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

Thursday, March 25, 2010

SEC Charges UBS Investment Banker and Friends with Insider Trading Ring

The SEC today charged a Wall Street investment banker, another securities professional, and one of their friends in a clandestine insider trading ring that netted approximately $1 million in illicit profits by trading ahead of at least 11 mergers, acquisitions, and other corporate deals.  The SEC alleges that Igor Poteroba, a high-ranking investment banker in UBS Securities LLC’s Global Healthcare Group in New York City, tipped his friend Aleksey Koval with highly confidential inside information about impending transactions involving pharmaceutical companies. Koval, who held positions at securities industry firms at the time, then traded in stocks and options of the companies targeted for acquisition. Koval also tipped their friend Alexander Vorobiev, who traded ahead of four of the deals. Among the means of communication used to illegally tip and trade on the inside information were coded e-mail messages that referred to securities and money as “frequent flyer miles” and “potatoes.” They coded one e-mail exchange about insider trading as a discussion about a Macy’s wedding registry.

The SEC alleges that the scheme began as early as July 2005 when Poteroba illegally tipped Koval in advance of the acquisition of Guilford Pharmaceuticals Inc. by MGI Pharma.  On July 21, 2005, Guilford publicly announced that it would be acquired by MGI Pharma, and Guilford’s stock closed 41 percent higher than the increase over the prior day’s closing price. That same day, Koval and Vorobiev sold most or all of the Guilford stock in their accounts as well as Guilford shares in a brokerage account in the name of Vorobiev’s wife.

With respect to subsequent insider trading transactions, the SEC’s complaint alleges that Poteroba continued to supply confidential information to Koval about various impending mergers. They continued to use coded e-mail messages to maintain communications during the insider trading scheme.

The Commission seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties against the defendants, and disgorgement of illicit profits with prejudgment interest from the relief defendants.

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