A former UBS AG official will pay New York $6.5 million to settle allegations that he used insider information to unload auction-rate securities before the market collapsed, state Attorney General Andrew Cuomo announced yesterday. David Aufhauser, formerly general counsel of UBS and general counsel of its investment bank, will forfeit a $6 million bonus to the state and pay a civil penalty of $500,000.
"Senior officials who were operating these firms are to be held accountable," Cuomo said during a conference call with reporters. "If you have situations where senior executives acted improperly, they have to be held accountable, and to the extent there were parachutes or bonus packages received they should be recouped."
Cuomo said his auction-rate securities investigation was ongoing and that his office was investigating other executives and other transactions beyond ARS, but declined to give details.
In July, Cuomo charged in a lawsuit against UBS that seven unidentified officials at the firm had sold their ARS last year while the firm was still pushing them to investors. UBS settled with state and federal regulators in August, agreeing to purchase or provide liquidity for $22.1 billion of auction-rate securities and to pay $150 million in fines.
Under the agreement, Aufhauser is barred for two years from working in the securities industry, serving as a director or officer of any public company, and practicing law in the state.
Cuomo's office said that Aufhauser directed his financial adviser to sell his personal holdings of auction-rate securities minutes after reading an e-mail on Dec. 14, 2007, while riding an Amtrak Acela train. The e-mail, from UBS's chief risk officer, outlined "a series of grave problems" with the auction-rate market and UBS' position in that market.
Aufhauser immediately forwarded the e-mail to two other UBS lawyers, requesting a meeting on the issues it raised and then, minutes later, he told his financial adviser to sell all of his ARS, the attorney general's office said.
"I want to get out of arcs [auction-rate certificates]. Let's talk on Monday," Aufhauser said in an e-mail released by the Cuomo's office. On Dec. 18 and 21, 2007, his broker sold Aufhauser's $250,000 of ARS.
Aufhauser committed fraud by misappropriating confidential information for securities trading purposes, the AG's office said.
As part of the settlement, Aufhauser neither denied nor admitted any wrong doing. UBS spokesman Douglas Morris declined to comment on the settlement.
"Mr. Aufhauser left the firm at the end of September," Morris said in an e-mail. "We do not comment on matters between the NYAG and individuals."
Cuomo's office has settled with 10 broker dealers in his probe of the auction-rate market, which collapsed in February when investment banks stopped supporting auctions for which there was insufficient demand.