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Attorney General Andrew M. Cuomo today 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.
“While thousands of UBS customers were kept in the dark as the auction rate market began to collapse, David Aufhauser, one of the company’s top executives, acquired insider information and quietly dumped his personal holdings of auction rate securities,” said Attorney General Andrew Cuomo. “Today’s settlement ought to serve as a reminder to corporate insiders that they’re not above the law and self-dealing in the form of trading on material, non-public information will not go unpunished.”
In April 2008, Cuomo began to investigate UBS Securities LLC and UBS Financial Services, Inc. (UBS) in connection with the sale and marketing of auction rate securities and subsequently commenced an investigation, among other things, into Aufhauser’s personal trading of auction rate securities.
Aufhauser, one of UBS’s most senior lawyers from September 2004 to August 2008, sold his personal holdings of auction rate securities minutes after learning material, non-public information. Specifically, 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.
Upon reading the December 14, 2007 e-mail on the train, 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.
Today’s settlement follows landmark settlements with ten broker-dealers providing for approximately $50 billion in buybacks of auction rate securities. Cuomo’s auction rate securities investigation is continuing.
Assistant Attorneys General Pamela Mahon, Christopher Mulvihill and Ethan Zlotchew, conducted the David Aufhauser investigation under the supervision of David A. Markowitz, Chief of the Investor Protection Bureau, and Eric Corngold, Executive Deputy Attorney General for Economic Justice.
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