Lawyer knew problems with ARS market before its fall, Cuomo says

John O'Brien Oct. 7, 2008, 5:00pm


NEW YORK (Legal Newsline) - One of the heads of Swiss bank UBS reached a $6.5 million settlement with New York Attorney General Andrew Cuomo Tuesday over allegations that he used insider trading to his advantage.

David Aufhauser will pay the millions, which includes $500,000 in civil penalties, to the State and can never be employed by or associated with a broker dealer, investment advisor, hedge fund or any other participant in the securities industry.

Cuomo said Aufhauser sold his personal holdings of auction rate securities after he learned it would collapse, which it did earlier this year. That fall of the ARS market has been the subject of several actions around the country by attorneys general who feel ARS sellers misrepresented the stability of the market.

"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," Cuomo said.

"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."

Aufhauser was a lawyer at UBS and was sent an e-mail from a company risk officer in December that outlined a series of problems with the ARS market that had not been made public, Cuomo said. Auction rate securities are investments that have their interest rates periodically reset by auction.

After reading the e-mail, he forwarded it to two fellow lawyers and told his financial advisor to sell all his auction rate securities, Cuomo said.

Aufhauser sold $250,000 worth of ARS the following week.

From Legal Newsline: Reach John O'Brien by e-mail at

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