Skip to main content

Charges Settled for Former UBS Broker who Sold Auction-Rate Securities

David Shulman, the former UBS executive who was suspended by UBS in July 2008, has agreed to pay a $2.75 million fine over insider trading charges connected to auction-rate securities sales and be suspended from employment by a broker or dealer until next January.

“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,” said New York Attorney General Cuomo in a press statement. “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.”

Cuomo announced the settlement with Shulman on Feb. 18, 2010 Shulman is the second UBS executive to settle with Cuomo’s office thus far. To date, Cuomo’s investigation into auction-rate securities has reached agreements with 13 broker/dealers and produced more than $60 billion in repurchases of investors’ ARS holdings.

Shulman was accused of selling off $1.45 million of his personal investments in auction-rate securities in December 2007 after he learned that UBS’ own auctions were hitting a snag. On Dec. 11, 2009 one of Shulman’s employees emailed him that the group was “very concerned” about certain issues related to UBS’ student loan auction-rate program and its continuing support for that program. In that e-mail, the employee stated that “the auction product is flawed.”

On Dec. 12, 2009 records show that one of Shulman’s employees forwarded an email to Shulman with a subject line of “stud loans,” and warned Shulman that “the auction product does not work … our options are to resign as remarketing agent or fail or ?” In another e-mail that same day, the employee advised Shulman in no uncertain terms that with respect to UBS’ student loan auctionrate securities, “the entire book needs to be restructured out of auctions.” Finally, on Dec. 13, Shulman instructed his broker to immediately sell his holdings in student loan auction-rate securities, before the upcoming auctions could occur. Later that day, Shulman’s ARS holdings were sold via inter-auction directly to the UBS Short Term Trading desk.

Coincidentally, the Short Term Trading desk was under Shulman’s supervision. Shulman’s broker mentioned Shulman by name when he called the desk to place the trades. This was the first and only time Shulman sold auction rate securities inter- auction.