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Update: David Slaine Pleads Guilty

Posted by Larry Doyle on February 2, 2010 10:02 PM |

GUILTY!!

Wall Street master of the universe David Slaine has now been reduced to just another in a long line of Wall Street crooks.

God forbid one tries to make an honest living in the financial industry.

I first wrote about Slaine on January 17th. At that point, I wondered whether Slaine’s cover as a government mole in the ongoing insider trading investigation on Wall Street had been blown by The Wall Street Journal. Was somebody trying to out Slaine in order to distract or derail the ongoing investigation?

We may never know. What we do know now is that Slaine had already pled guilty at that point.

Reuters reports today, Ex-NY Fund Manager Slaine Pleads Guilty: >>

Former Wall Street hedge fund manager David Slaine pleaded guilty last December to charges of insider trading that reaped profits of $3 million, U.S. prosecutors said on Tuesday.

Slaine, who was identified in a court document on Tuesday as a cooperator in the separate, high-profile Galleon hedge fund insider trading case, admitted to conspiracy and securities fraud charges over trades he made in 2002 from tips provided by a former UBS Securities LLC executive.

The criminal charges announced by the Manhattan U.S. Attorney mirrored a civil complaint filed earlier in the day by the U.S. Securities and Exchange Commission. Prosecutors said he pleaded guilty on Dec. 18 last year but they did not make the information public until Tuesday.

Slaine’s attorney, Stephen Kaufman, could not immediately be reached for comment.

Slaine, 50, formerly of DSJ International Resources Ltd, or Chelsey Capital of New York, used the confidential information to trade ahead of UBS analyst recommendations, the SEC said in a civil securities fraud complaint filed in Manhattan federal court.

He faces a possible maximum sentence of 25 years in prison when he is sentenced on June 25 on the criminal charges.

Slaine was cited in a legal brief as a government cooperator by one of a score of defendants in the high-profile Galleon hedge fund insider trading probe.

The brief, by an attorney for indicted former trader Zvi Goffer, referred to a Jan. 26 phone call with the SEC “to explore the failure of the SEC to have produced any consensual recordings, cooperation agreements, reports of interview or other material relevant to government cooperators Gautham Shankar and David Slaine in the large productions made by the SEC.”

Shankar, a one-time proprietary trader at Schottenfeld in New York where Goffer also worked, pleaded guilty on Oct. 20 last year to fraud charges in the insider trading conspiracy. Goffer pleaded not guilty to an indictment on Tuesday.

Tuesday’s SEC complaint said Mitchel Guttenberg, a 44-year-old former UBS executive who is serving a 78-month prison sentence following conviction on criminal charges of insider trading, tipped a Chelsey analyst Erik Franklin, who tipped Slaine.

It said that in 2002, Slaine made more than 20 trades in his personal account based on the UBS tips, reaping $500,000 in illegal profits.

“Slaine knew that Franklin had a source at UBS who provided Franklin this material, nonpublic information,” the SEC said. “Slaine knew, or should have known, that this information was being tipped in a breach of duty to UBS.”

The complaint said Franklin, 40, was a portfolio manager at Q Capital Investment Partners LP, Lyford Cay Capital and Chelsey Capital between 2001 and 2007.

Franklin tipped confidential information concerning upcoming UBS analyst recommendations to Slaine and another Chelsey manager, the lawsuit said. It did not identify the other manager.

The case is SEC v David Slaine, U.S. District Court for the Southern District of New York, No. 10-754.

White collar crime and white collar criminals are nothing more than armed robbers wearing a suit. They destroy confidence in the markets and are a cancer within our society. As such, they deserve to be treated accordingly. Until the punishment truly fits the crime, this slime and scum will perpetuate.

To the extent there are others within the industry or the financial regulatory structure who have also violated the law, they need to pay as well . . . in spades.

LD

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My original post from January 17th, “Who Is David Slaine”:

With friends like these, who needs enemies?

I have written previously on the importance of strong relationships while working on Wall Street. While the Wall Street numbers and dollars are voluminous, ultimately Wall Street is a ‘people business.’

I have also written previously how ‘information is everything’ on Wall Street. Traders work tirelessly to determine what is moving or what will move the market. Utilizing this information, millions of dollars can be made or lost in the course of a very short time span.

Combining these two critically important factors, it should be no surprise how some will use – but then abuse – these two primary cornerstones of our financial industry.

Folllowing this line of reasoning, are you ever shocked when a guy who cheats on his wife also then cheats on his girlfriend? Where am I going with this? Let’s enter the world of David Slaine, the government’s mole in the insider trading scandal currently rocking Wall Street.

I will profess, I am truly shocked this morning reading how Slaine’s identity and story are reported in The Wall Street Journal’s Wired on Wall Street: Trader Betrays a Friend:

For more than a year, Mr. Slaine, a senior Wall Street trader, was a government mole who wore a wire strapped to his torso, helping prosecutors to build the biggest insider-trading case in two decades.

Using extensive contacts developed over a 27-year Wall Street career, Mr. Slaine has provided leads on possible insider trading by others not yet implicated in a sprawling case involving hedge fund Galleon Group, people familiar with the matter say. That case has rocked Wall Street and Silicon Valley and raised questions about the integrity of the nation’s financial markets. Mr. Slaine’s identity as an informant is being revealed by The Wall Street Journal for the first time.

In a brief telephone interview Thursday night, Mr. Slaine said: “You got the wrong guy.” He said he has “nothing to do with that case.” He declined to provide a lawyer’s name.

A criminal complaint filed in a New York federal court in November describes in detail the involvement of a cooperating source dubbed “CS-1.” The Wall Street Journal has confirmed that Mr. Slaine is that cooperating source. This story of his involvement in the case was pieced together from information contained in the complaint and from interviews with Wall Street traders, lawyers and government officials involved the case.

Mr. Slaine’s saga demonstrates how the U.S. has used Wall Street players to go undercover and turn on their colleagues. Mr. Slaine, 50 years old, has told prosecutors, among other things, that his friend and weight-lifting partner, Craig Drimal, traded on inside information. In November, Mr. Drimal was arrested at his Weston, Conn., home. Mr. Drimal declined to comment.

The insider trading scandal and investigation is unique in the fact that informants like Slaine are wearing a wire to collect information and implicate co-conspirators. That said, why is The Wall Street Journal revealing Slaine’s identity and story at this point? Is the government sacrificing his identity in order to send a message to others within the industry or did the WSJ actually compromise the investigation with this story?

Do you think Slaine will be looking over his back? Do you think others within the industry are now wondering who else is wearing a wire?

Keep your friends close and your enemies closer.

LD

  • Lou

    Will be interesting to see what sort of sentence Slaine receives. If he is facing 25 years but has been cooperating for the past year, what does that get him.

    Would think he is a likely candidate for the witness protection program.






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