UBS Lawyer's Trades Could be Precedent-Setting

(MoneyWatch)  The resignation of UBS's top U.S. lawyer, David Aufhauser, raises an interesting question of insider trading. While no charges, and certainly no criminal charges, have been bought against Aufhauser, a civil complaint filed by New York Attorney General Andrew Cuomo suggests that the UBS lawyer, a former Treasury official, sold off his personal stake in auction-rate securities just after he learned that the entire market for these supposedly liquid instruments was about to collapse.

Bloomberg summarizes the facts:

Cuomo's complaint against UBS, filed at state court in Manhattan, says Executive A e-mailed his personal financial adviser Dec. 14, saying 'I want to get out of ARCs,' the same day he was e-mailed a copy of a message from UBS's chief risk officer to the company's CEO about a series of problems with the auction-rate market. By Dec. 21, he had sold all $250,000 of his auction-rate securities.

It apparently didn't take "Executive A" (believed to be Aufhauser) long to figure he'd done something wrong. As Bloomberg reports, "Executive A repurchased the same securities on Feb. 12, after he questioned the 'propriety' of another executive's trades in the debt, the complaint said. A day later, UBS stopped supporting its auctions."Normally, insider trading (which is not always illegal) involves buying or selling shares of a particular security by someone armed with knowledge of a particular company. Charging someone with fraud based on his insider knowledge of an entire market is pretty much unheard of. But there's a first time for everything.

UBS said it doesn't think anyone at the bank did anything illegal here. But the last thing that UBS needs is a lawyer who, instead of arguing precedents, is a precedent himself.