By Martha Graybow
NEW YORK (Reuters) - A former top lawyer at UBS (UBSN.CH)AG has agreed to pay $6.5 million to settle accusations he sold his personal holdings of auction-rate securities after getting insider information about the collapsing market for the debt.
The settlement was announced on Tuesday by New York Attorney General Andrew Cuomo, whose office has been probing Wall Street's handling of the $330 billion auction-rate market.
Cuomo said his investigation is continuing and his office was looking at other Wall Street executives.
Regulators say financial firms misled investors into believing auction-rate debt was safe and the equivalent of cash. Numerous banks have agreed to buy back billions of dollars worth of the securities after the market for the debt fell apart earlier this year and investors who bought the securities were unable to access their money.
David Aufhauser, who had been general counsel of UBS AG's global investment bank operations until last month and is also a former U.S. Treasury Department general counsel, did not admit or deny any wrongdoing in agreeing to the settlement, Cuomo said.
Under the pact, Aufhauser is also subject to a two-year ban from the securities industry and from practicing law in the state for two years.
"We are pleased to have reached this amicable agreement and avoided a potentially lengthy litigation," Aufhauser's spokesman said.
The statement said the trading at issue resulted in no personal profit for Aufhauser.
Cuomo's office contends Aufhauser learned of material, nonpublic information about the Swiss bank's problems in the auction-rate securities market through an e-mail he received from UBS' chief risk officer while on a Friday evening train from New York to Washington on December 14, 2007.
Aufhauser, a former general counsel to the Treasury Department, immediately forwarded the e-mail to two other UBS lawyers requesting a meeting to discuss the issues, Cuomo's office said.
Minutes later, while still on the train, Aufhauser contacted his financial adviser with instructions to unload all of his auction-rate securities, Cuomo said. Aufhauser repeated his instruction on Monday, December 17 to the broker, who sold the executive's $250,000 worth of securities on December 18 and 21, 2007, Cuomo said.
Aufhauser will pay $6 million to New York state that he had been due to receive in bonus pay from UBS, plus a $500,000 civil penalty, Cuomo said.
A UBS spokeswoman declined to comment on the settlement.
(Reporting by Martha Graybow, editing by Gerald E. McCormick and Andre Grenon)
