NEW YORK (Legal Newsline) - A former UBS top executive has agreed to a settlement with New York Attorney General Andrew Cuomo over the alleged use of insider information in the sale of auction rate securities.
David Shulman, formerly the global head of the Municipal Securities Group of UBS AG and the head of fixed income for the Americas of UBS Securities LLC, was alleged to have used personal information about the collapsing auction rate securities market at UBS.
As part of the agreement, Shulman will pay a $2.75 million civil penalty to the state of New York to resolve allegations of violating the state's Martin Act. He must also serve a 30-month suspension from employment by or association with a broker or dealer, starting with his July 2008 suspension by UBS and ending in Jan. 2011.
"While thousands of UBS customers received no warning about the auction rate securities market's serious distress, David Shulman - one of the company's top executives - used insider information to take the money and run," Cuomo said Thursday.
"From the start, our prime goal has been to get investors their money back. But let there be no mistake - When corporate executives unlawfully take advantage of their positions, we will hold them accountable."
In an investigation into the auction rate securities market, Cuomo said that UBS Securities LLC and UBS Financial Services had marketed and sold auction rate securities as safe, cash-equivalent products. The securities, in actuality, faced an increasing liquidity risk, Cuomo said.
As a result of the investigation, settlements were reached with 13 broker-dealers totaling more than $60 billion in investor buybacks, affecting thousands of consumers nationwide and representing the largest return on behalf of investors ever.
An examination of Shulman's personal auction rate securities trading was performed during Cuomo's investigation. Shulman served as UBS's highest-ranking executive from Aug. 2006-Aug. 2008, with day-to-day responsibility for UBSs' auction rate securities program.
Shulman learned between Dec. 11-13, 2007, of the company's auction rate securities program's distress and that there was a potential for failure in the upcoming student loan auction rate securities auction, Cuomo says. Shulman owned $1.45 million in student loan auction rate securities at the time, which were scheduled to be sold in late December and early January, Cuomo says.
Shulman instructed his broker on December 13, 2007 to immediately sell his student loan auction rate securities holdings prior to the upcoming auctions, Cuomo says. Shulman's holdings were sold, inter-auction, directly to the UBS Short Term Trading desk, which was under his supervision, Cuomo says. This was the first and only time that Shulman sold auction rate securities inter-auction and his name was mentioned when his broker called the desk to place the trades, Cuomo says.
This is the second settlement by Cuomo's office with a UBS senior executive resulting from the auction rate securities investigation over insider training. The investigation is on-going.