NEW YORK (CN) – David Aufhauser, a former top lawyer at UBS AG, will pay $6.5 million to settle claims that he sold personal auction-rate securities after getting tipped off about the troubled auction-rate market.
Aufhauser, 57, resigned as general counsel of Swiss bank’s global investment operations last August during an insider-trading investigation led by New York Attorney General Andrew Cuomo, whose office filed suit against UBS last July as part of its look into Wall Street executives’ activities related to the collapse of the $330 billion auction-rate market in February 2007.
Cuomo says Aufhauser was warned of the demise of the auction-rate securities market in an email from UBS’ chief risk officer while on route to Washington via train from New York on Dec. 14, 2007. Aufhauser immediately forwarded the email to two other UBS lawyers and emailed his financial broker, urging him to get rid of all his personal auction-rate holdings. Aufhauser then sold $250,000 of his personally-held securities on Dec. 18 and 21.
The disintegration of the auction-rate market last February prompted Cuomo and his staff to pursue civil and criminal charges against financial firms for misrepresenting to investors that auction-rate securities were as good as cash. UBS and Citigroup agreed to buy back $25 billion in bad securities in a settlement reached with Cuomo’s office last August.
Aufhauser’s settlement marks the first involving a high-ranking executive accused of insider auction-rate trading. Aufhauser does not admit or deny wrongdoing as part of the settlement, and issued a statement that he received no personal profit from the sale of the securities. The settlement bans Aufhauser from working in the securities industry for two years and from practicing law in New York for two years.
The settlement includes $6 million that will go to New York state, the same amount UBS intended to pay him as a bonus, and a $500,000 civil penalty, Cuomo said.