Feds Charge 14 in Insider Scheme

The Securities and Exchange Commission and the U.S. attorney charged more than a dozen individuals with participating in insider trading schemes that brought in more than $15 million in profits.

Regulators say the schemes involved illegal trading ahead of upgrades and downgrades by analysts at UBS (UBS), as well as corporate acquisition announcements from investment banking clients of Morgan Stanley (MS).

The SEC alleges that eight Wall Street professionals -- including a senior UBS research analyst and a former compliance officer for Morgan Stanley, two broker-dealers and one day-trading firm -- participated in the scheme. The agency says the acts violated antifraud provisions of federal securities laws. Beneficiaries of the alleged scheme included three hedge fund firms.

According to the SEC complaint, Mitchel Guttenberg, an executive director in UBS' equity research department, provided material, nonpublic information on upcoming ratings changes to two traders: Eric Franklin of hedge fund Lyford Cay and David Tavdy of Andover Brokerage. The SEC says that Franklin and Tavdy also had a network of traders that illegally traded on this inside information.

The agency alleges the network included another hedge fund, a day-trading firm and three representatives at Bear Stearns (BSC).

Traders also used stolen information from Morgan Stanley's investment bank ahead of corporate acquisition announcements, it says.

Separately, the U.S. attorney for Southern District of New York indicted Guttenberg, former Morgan Stanley compliance officer Randi Collotta and 11 other individuals for insider trading.