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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Statement Concerning SEC v. Guttenberg


Linda Chatman Thomsen

Director, Division of Enforcement
U.S. Securities and Exchange Commission

Washington, D.C.
March 1, 2007

Good morning.

Today, the Commission, the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation, in separate civil and criminal actions, have filed cases alleging one of the most pervasive Wall Street insider trading rings since the days of Ivan Boesky and Dennis Levine.

What is so alarming about the conduct alleged in the SEC's case isn't just the scope of the scheme - fourteen defendants, five years of illegal trading, hundreds of tips, and well over $15 million in illegal trading profits - but, sadly, who is at the center of it.

The defendants charged include registered representatives, attorneys, compliance personnel and hedge fund portfolio managers. And this conduct didn't occur in obscure boiler rooms - but rather at what are commonly considered "top tier" Wall Street firms. For example, the Commission's complaint includes the following allegations of misconduct by individuals at very well-known Wall Street firms:

  • Mitchel Guttenberg - who provided hundreds of illegal tips on UBS analyst upgrades and downgrades to a network of downstream tippees - was an executive director on an elite securities research committee at UBS.
  • Randi Collotta - who stole corporate acquisition information from Morgan Stanley's investment banking department - was an attorney in Morgan Stanley's compliance department who had responsibility for protecting the confidentiality of that information.
  • Erik Franklin was a portfolio manager for a hedge fund at Bear Stearns. Three other Bear Stearns registered representatives followed Franklin's lead and enriched themselves by trading on the material nonpublic information stolen from Morgan Stanley and UBS.

And this list continues. Collectively, as alleged in our complaint, there is hardly a duty on Wall Street that the defendants charged today didn't breach - duties owed from attorney to client, broker to customer, employee to employer, investment adviser to advisee, compliance officer to firm.

I'd like to take just a moment to touch on why today's actions are so important to the Commission's mission. The laws against insider trading play an essential role in protecting our securities markets and in promoting investor confidence in the integrity of those markets.

Whether it happens on Main Street or Wall Street, a market participant who engages in illegal insider trading undermines the level playing field that is the hallmark of our capital markets. It is, however, particularly pernicious when Wall Street insiders - who derive their already substantial livelihood from the capital markets and those markets' investors - shamelessly compromise the markets' integrity and investors' trust for a quick buck.

Today's case demonstrates the Commission's resolve and ability to aggressively investigate and prosecute insider trading. I think it is worth noting that in both of the schemes alleged in our complaint -- the "UBS Scheme" and the "Morgan Stanley Scheme" - the original tippers, Mr. Guttenberg and Ms. Collotta, took steps to evade detection. Neither traded in their personal accounts. Both received kickbacks that were paid in cash. In fact, Mr. Guttenberg and his tippees even used disposable cell phones, secret codes, and discreet meeting places to attempt to conceal their actions.

Some defendants may have thought they were flying "under the radar" by making modest profits on individual transactions, secure in the knowledge that, over hundreds of tips, they would reap millions of dollars in illicit trading profits. And yet - despite their best efforts to avoid detection - we caught them.

Today's events should send a message to anyone who believes that illegal insider trading is a quick and easy way to get rich. No matter how clever you are, no matter how hard you try to avoid detection, you underestimate us at your peril. We are passionate about protecting investors and the integrity of our markets. And if we catch you, we will use all resources at our disposal to hold you accountable.

Rigorous enforcement of our current statutory and regulatory prohibitions on insider trading - particularly when brought as a parallel proceeding with the Department of Justice, plays an important part of the Commission's mission. Today's actions are the result of an exemplary effort by the U.S. Attorney's Office for the Southern District of New York, the FBI and the Commission.

I'd like to thank the USAO and the FBI for their assistance - as well as the entire SEC team that has worked on this investigation: Scott Friestad, Robert Kaplan, Brian Quinn, Chris Swart, and Jane Peterson.

Our investigation is continuing.

Thank you.


Modified: 03/01/2007