MICHAEL J. GARCIA, the United States Attorney for
the Southern District of New York, announced that MITCHEL
GUTTENBERG, a former executive director in the equity research
department of UBS Securities LLC (“UBS”), and DAVID TAVDY pleaded
guilty today to participating in a massive insider trading scheme
that netted millions of dollars in illegal profits. GUTTENBERG,
42, and TAVDY, 39, pleaded guilty in Manhattan federal court
before United States District Judge DEBORAH A. BATTS. According
to the Indictment and the guilty plea proceedings:
Between December 2001 and August 2006, GUTTENBERG
repeatedly sold to TAVDY and another individual material,
nonpublic information regarding upcoming upgrades and downgrades
in UBS analysts’ securities recommendations (the “UBS Inside
Information”). Investors, including institutional investors and
professional money managers, regularly relied on UBS analysts’
ratings of public companies’ securities. As a result, changes in
UBS analysts’ recommendations regarding a particular company’s
securities were material to investors and often had a direct
effect on the trading price of that company’s stock.
Before UBS publicly releases its analysts’ upgrades and
downgrades, they must be reviewed by the UBS Investment Review
Committee (“IRC”). GUTTENBERG became a member of the IRC in
December 2001, and, accordingly, was entrusted with the UBS
In breach of his duties of trust and confidence to UBS,
and in violation of UBS’s written policies, GUTTENBERG sold the
UBS Inside Information to TAVDY and another individual, who each
paid him hundreds of thousands of dollars. TAVDY and the other
individual separately used the UBS Inside Information to execute
hundreds of profitable securities transactions. By using the UBS
Inside Information, TAVDY and the other individual earned some
$15 million in illegal profits for themselves and for a series of
hedge funds with which the other individual was associated.
GUTTENBERG’s tips to TAVDY alone resulted in net profits of more
than $10 million in brokerage accounts under TAVDY’s control and
the brokerage account of Jasper Capital, an entity though which
When GUTTENBERG communicated that UBS was about to
announce an upgrade in its recommendation for a company’s stock,
the recipient of the UBS Inside Information would purchase the
stock. After UBS publicly announced its upgrade, the price of
the stock generally would increase. The recipient then would
sell the stock to earn a profit. Similarly, when GUTTENBERG
communicated that UBS was about to announce a downgrade in its
recommendation for a company’s stock, the recipient of the UBS
inside information would sell the stock short. After UBS
publicly announced its downgrade, the price of the stock
generally would fall, after which the recipient would purchase
the stock that he had sold short to earn a profit.
For example, on March 28, 2006, GUTTENBERG communicated
to TAVDY that UBS was going to downgrade its rating on the stock
of Caterpillar, Inc. That day, TAVDY sold short approximately
11,000 shares of Caterpillar stock in one of his brokerage
accounts. The next day, March 29, 2006, UBS publicly announced
that it was downgrading its rating on Caterpillar from “buy” to
“neutral.” Following the UBS announcement, on the same day,
TAVDY covered his short position by purchasing approximately
11,000 shares of Caterpillar stock in the same brokerage account,
resulting in a profit of at least $30,000.
Similarly, on May 25, 2006, GUTTENBERG communicated to
TAVDY that UBS was going to upgrade its rating on the stock of
Goldman Sachs Group, Inc. That day, TAVDY bought approximately
7300 shares of Goldman Sachs stock in one of his brokerage
accounts. The following day, May 26, 2006, UBS publicly
announced that it was upgrading its rating on Goldman Sachs from
“neutral” to “buy.” Following the UBS announcement, on the same
day, TAVDY sold approximately 7300 shares of Goldman Sachs stock
from the same brokerage account, resulting in a profit of at
least approximately $20,000.
GUTTENBERG pleaded guilty to two counts of conspiracy
to commit securities fraud and four counts of securities fraud.
He faces a maximum sentence of 90 years’ imprisonment.
GUTTENBERG is scheduled to be sentenced on June 2, 2008 at 11:30
a.m. GUTTENBERG remains free on bail pending sentencing.
TAVDY pleaded guilty to one count of conspiracy to
commit securities fraud and two counts of securities fraud.
TAVDY faces a maximum sentence of 45 years’ imprisonment. TAVDY
is scheduled to be sentenced on June 30, 2008 at 11:30 a.m.
TAVDY remains free on bail pending sentencing.
Mr. GARCIA, a member of the President’s Corporate Fraud
Task Force, praised the efforts of the FBI and thanked the SEC
for its assistance in the investigation.
Assistant United States Attorneys ANDREW L. FISH and
JOSHUA A. GOLDBERG are in charge of the prosecution.