Thirteen people have been charged with criminal securities fraud in the United States, accused of involvement in an insider trading scandal that is being compared to the days of Ivan Boesky and Dennis Levine in the 1980s.
Randi Colotta, a Morgan Stanley compliance officer, allegedly passed on news of pending mergers and acquisitions during 2004 and 2005. Mitchel Guttenberg, a UBS executive director, purportedly gave traders for several hedge funds advance warning of stock upgrades and downgrades for more than six years.
The two plots involved a total of 14 people, four major Wall Street firms, three hedge funds and a purported $15 million in illicit profit, say federal authorities. If convicted, the defendants face potential maximum sentences ranging from 15 to 90 years.
Four people have already pleaded guilty to criminal charges, while nine others were arrested on Thursday.
The authorities say they fear insider trading is making a comeback in the financial markets, and that lightly regulated hedge funds might be particularly likely to flout the law to get an edge.
“Incidents like this strengthen the hands of those who are urging greater scrutiny of hedge-fund activities and their sources of information,” says a former SEC general counsel now in private practice.
Traders “have been talking for ages” about suspicious price moves in stocks ahead of significant moves, says Holly A. Stark, a veteran trader now working as a consultant.
“There’s always been a sneaking suspicion that there’s information leakage,” she adds. “It’s like, ‘These guys are just not that smart.”