Thursday, March 01, 2007



U.S. slump possible, not probable: Greenspan quoted

Thu Mar 1, 2007 6:19am ET136

TOKYO (Reuters) - Former Federal Reserve Chairman Alan Greenspan was quoted as saying on Thursday that a recession in the United States is possible, though not probable this year as inventory problems in the economy are being addressed quickly, Bloomberg reported.

Greenspan spoke via a satellite link at a forum held by CLSA Japan, and his comments were quoted by a few of the participants, Bloomberg said. The forum was closed to the media.

"By the end of the year, there is the possibility, but not the probability of the U.S. moving into recession," Greenspan told the forum, according to notes by Bernard Key, a former economics professor at Tama University in Tokyo, who attended the event and spoke to Bloomberg.

There are specific housing and general inventory problems that are being addressed quickly, but need to be carefully monitored, he was quoted as saying.

Greenspan's reported comments came a day after Federal Reserve Chairman Ben Bernanke said this week's stock market drop had not changed the Fed's view that the U.S. economy was sound.

On Tuesday, the U.S. stock market suffered its worst slide since 2001, as a sell-off in China's stock market raised fears equity valuations were too high.

Bernanke also said a downward revision on Wednesday in the government's estimate of fourth-quarter economic growth -- to a 2.2 percent annual pace from an initial 3.5 percent reading -- was in keeping with the Fed's view of the economy.

Greenspan also told the forum that current yield premiums are not sustainable, profit margins are peaking and the U.S. growth cycle is in a mature phase, Bloomberg reported.

He also said previous experience suggested that when profit margins flatten, there could be a recession, adding that globalization of the economy may mean that pattern may not repeat this time, according to a fund manager who attended the forum.


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SEC Charges 14 in Wall Street Insider Trading Ring

SEC Charges 14 in Wall Street Insider Trading Ring

Defendants Include Hedge Funds, Lawyers and Professionals at UBS, Bear Stearns, and Morgan Stanley


Washington, D.C., March 1, 2007 - The U.S. Securities and Exchange Commission today charged 14 defendants in a brazen insider trading scheme that netted more than $15 million in illegal insider trading profits on thousands of trades, using information stolen from UBS Securities LLC and Morgan Stanley & Co., Inc. The SEC complaint alleges that eight Wall Street professionals, including a UBS research executive and a Morgan Stanley attorney, two broker-dealers and a day-trading firm participated in the scheme. The defendants also include three hedge funds, which were the biggest beneficiaries of the fraud.

"Our action today is one of several that will make very clear the SEC is targeting hedge fund insider trading as a top priority," said SEC Chairman Christopher Cox.

The scheme involved unlawful trading ahead of upgrades and downgrades by UBS research analysts and corporate acquisition announcements involving Morgan Stanley's investment banking clients. The ringleaders of the UBS part of the scheme went to great lengths to hide their illegal conduct, first through a clandestine meeting at Manhattan's famed Oyster Bar and eventually the use of disposable cell phones, secret codes and cash kickbacks before the scheme unraveled.

"Today's events should send a message to anyone who believes that illegal insider trading is a quick and easy way to get rich. No matter how clever you are, no matter how hard you try to avoid detection, you underestimate us at your peril," said SEC Enforcement Director Linda Chatman Thomsen. "Illegal insider trading undermines the level playing field that is the hallmark of our capital markets. It is, however, particularly pernicious when Wall Street insiders — who derive their already substantial livelihood from the capital markets and those markets' investors — shamelessly compromise the markets' integrity and investors' trust for a quick buck."

SEC Associate Director of Enforcement Scott W. Friestad said, "Today's action is one of the largest SEC insider trading cases against Wall Street professionals since the days of Ivan Boesky and Dennis Levine. It involves fraud by employees of some of the biggest brokerage and investment banking firms in the country. We will do everything possible to make sure that, in addition to any other remedies or sanctions imposed, none of these individuals ever works in the securities industry again."

According to the SEC complaint, Mitchel Guttenberg, an executive director in the equity research department at UBS, provided material, nonpublic information concerning upcoming UBS analyst upgrades and downgrades to traders Eric Franklin and David Tavdy, in exchange for sharing in the illicit profits from their trading on that information. Franklin and Tavdy illegally traded on this inside information personally, for the hedge funds Franklin managed, and for the registered broker-dealers where Tavdy was a trader. Franklin and Tavdy also had a network of downstream tippees who illegally traded on this inside information, including a third hedge fund, a day-trading firm, and three registered representatives at Bear, Stearns & Co., Inc.

Several of those who illegally traded on the UBS information, and others, also traded ahead of corporate acquisition announcements using information stolen from Morgan Stanley. According to the complaint, Randi Collotta, an attorney in the global compliance department of Morgan Stanley, together with her husband, Christopher Collotta, an attorney in private practice, provided material, nonpublic information concerning upcoming corporate acquisitions involving Morgan Stanley's investment banking clients to Marc Jurman, a registered representative at a Florida broker-dealer. Jurman then traded on this information and shared his illicit profits with the Collottas. Jurman also tipped Robert Babcock, a registered representative at Bear Stearns, who traded on the information and tipped Franklin, a hedge fund managed by Franklin, and another registered representative at Bear Stearns.

As a result of the conduct described in the complaint, the Commission alleges that each named defendant violated the antifraud provisions of the federal securities laws. The Commission's complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of civil monetary penalties.

The Commission's complaint names the defendants and includes the allegations set forth below:

The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. The Commission's investigation is ongoing.

# # #

For more information, contact:

Scott W. Friestad
Associate Director
U.S. Securities and Exchange Commission
(202) 551-4962

Robert B. Kaplan
Assistant Director
U.S. Securities and Exchange Commission
(202) 551-4969

Additional materials: Litigation Release No. 20022


Lawyer Charged in $10 Million Securities Fraud

Lawyer Charged in $10 Million Securities Fraud

Published: March 1, 2007

Federal prosecutors charged an ex-partner of the law firm McGuireWoods with fraud yesterday, claiming that he illegally obtained and sold shares of various companies for a profit of millions of dollars.

Louis W. Zehil, 41, was arrested, and a federal magistrate later set bail at $250,000.

Separately, the Securities and Exchange Commission filed a civil complaint against Mr. Zehil in Federal District Court in Manhattan.

Mr. Zehil, who worked at McGuireWoods’s offices in Jacksonville, Fla., and New York, resigned from the firm in January. His lawyer declined to comment.

Mr. Zehil represented seven companies between January 2006 and February 2007 in issuing their stock in private investments in public equity, or PIPE, transactions, according to the SEC.

In these PIPE transactions, investors buy restricted shares at a discount and can sell them in public markets after the shares have been registered with the S.E.C., according to the complaint.

Mr. Zehil invested in the seven companies through two entities he controlled, according to the complaint filed by the United States attorney’s office in Manhattan.

But Mr. Zehil told the stock transfer agent that the two companies he controlled were eligible to get shares without a restrictive legend and he sold those shares in the public market for a profit of about $10 million, according to the complaint.

The matter was reported to the S.E.C. by McGuireWoods, the government said, adding that the law firm was cooperating with its investigation.

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