(Bloomberg News) Three former UBS AG executives who pleaded guilty or were sentenced in U.S. courts over a 24-hour period put the largest Swiss bank in a different light than its website touting the skill and professionalism of its bankers.
Yesterday and the day before, one banker pleaded guilty and another was sentenced in separate cases involving insider trading while a third pleaded guilty in tax case. A fourth man, an ex-UBS client, admitted yesterday to hiding his Swiss bank account from U.S. tax authorities. Zurich-based UBS admitted last year that it helped thousands of Americans evade taxes, avoided U.S. prosecution by paying $780 million and gave the Internal Revenue Service data on accounts.
Igor Poteroba, 37, pleaded guilty to one count of conspiracy to commit securities fraud and three counts of securities fraud on Dec. 21 before U.S. District Judge Paul A. Crotty in Manhattan, according to court records. He was accused of tipping friends to potential mergers and has agreed to forfeit $465,000 in proceeds from the crime.
Nicos Stephanou will serve no more prison time after testifying for prosecutors at an unrelated insider-trading trial. He was sentenced yesterday in federal court in New York after spending 19 months in custody after his arrest. Freed in August, he was the government's star witness in the trial of Joseph Contorinis, a former money manager at Jefferies Paragon Fund who was convicted in October in an insider-trading scheme that prosecutors said netted more than $7 million in illegal profits.
Hiding Assets
In a third case, former UBS banker Renzo Gadola pleaded guilty to helping wealthy American clients hide assets from the Internal Revenue Service.
Gadola, 44, yesterday admitted conspiring with a Swiss banker to encourage U.S. clients who hadn't told the IRS about their UBS accounts to open undeclared ones at Basler Kantonalbank. Gadola, who is cooperating with prosecutors, entered his plea in federal court in Miami.
The unidentified banker and Gadola told clients not to join a partial amnesty program that led 18,000 Americans to disclose offshore accounts to the IRS, prosecutors said. Gadola and the banker told U.S. clients "not to disclose their undeclared accounts at Basler Kantonalbank and other banks to the United States government," according to court filings.
Tax Charges
A former UBS client, Ernest Vogliano, pleaded guilty to six federal tax charges for hiding about $1.8 million in a Swiss bank account from the IRS.
Vogliano, who lives in New York, was among seven one-time UBS clients who were arrested or whose guilty pleas were announced in April. Vogliano entered his plea yesterday in federal court in Manhattan.
Poteroba is in a federal jail in New York, unable to post $5 million bail set in March. At the bail hearing, prosecutors said Poteroba had admitted to trading on inside information.
Poteroba, who worked in UBS Securities LLC's Global Healthcare Group in New York, was charged and arrested in March along with Alexi Koval, a Chicago man who allegedly traded on the information. Poteroba was accused of leaking tips about potential mergers and acquisitions involving six public companies to Koval and an unnamed third person.
The U.S. Securities and Exchange Commission filed a civil suit against Poteroba, Koval and Alexander Vorobiev, who now lives in Russia. All three are Russian citizens, according to the SEC.
Inside Information
Prosecutors claimed the inside information was connected to mergers or acquisitions involving Guilford Pharmaceuticals Inc., Molecular Devices Corp., PharmaNet Development Group Inc., ViaCell Inc., Millennium Pharmaceuticals Inc. and Indevus Pharmaceuticals.
A spokeswoman for the office of U.S. Attorney Preet Bharara in Manhattan didn't immediately respond to an e-mail yesterday seeking a copy of Poteroba's plea agreement.
Kelly Smith, a spokeswoman for UBS, declined to comment on Poteroba's guilty plea.
Stephanou, a London resident and native of Cyprus who was arrested in December 2008 when his flight from Cancun stopped in the U.S., began cooperating with prosecutors "almost immediately," defense attorney Christopher J. Morvillo told U.S. District Judge Richard J. Sullivan at yesterday's sentencing.
"Much of what he told the government was unknown to them," Morvillo said. "He admitted that he made a colossal mistake."
'Heavy Burden'
Stephanou told Sullivan that the crime is "a heavy burden that I will carry on my shoulders for the rest of my life."
Sullivan cited Stephanou's "exceptional" cooperation with prosecutors in sentencing him to the 19 months he already served, even though he was "more culpable" than others for leaking client secrets.
"This is not a casual crime," the judge said. "This is not a way of doing business." He added: "There are some who doubt that."
Contorinis was sentenced on Dec. 17 to six years in prison.
Stephanou, formerly an associate director of mergers and acquisitions at UBS, pleaded guilty in May 2009 to passing along tips to Contorinis, a friend. He testified that he routinely told friends from New York and Cyprus about companies that were to be acquired.
Some trades were executed through offshore accounts he set up, and profits were split with friends, said Stephanou.
Sullivan also ordered Stephanou to forfeit $14 million to the government, citing the illegal proceeds of participants in various insider trading schemes. Prosecutors had asked that Stephanou forfeit only his profit, $973,000.
Taped Calls
Assistant U.S. Attorney Andrew Fish said in court that even after the judge ordered repayment of $14 million, the government would agree to accept $973,000 in settlement, which Stephanou has already paid.
Stephanou's cooperation and willingness to tape phone calls led to criminal charges against two others, Fish said. The prosecutor said leniency for Stephanou would "send a message" to others about the value of assisting the government.
"The people he taped were his closest friends," Fish said.
One of Stephanou's friends, Michael Koulouroudis, was sentenced to three months in prison after admitting he traded on tips from Stephanou. Another friend, George Paparrizos, pleaded guilty and was sentenced to probation.
Stephanou agreed to be deported as part of his sentence.
Disclosure Program
Gadola, a UBS banker from 1995 to 2008, is the first person charged with trying to discourage taxpayers from entering the IRS voluntary disclosure program. Basler Kantonalbank, based in Basel, Switzerland, signed an agreement requiring it to withhold taxes for the IRS on accounts beneficially owned by U.S. taxpayers.
Gadola was first charged by U.S. authorities on Nov. 7. His case was made public Dec. 15. He entered his plea before U.S. Magistrate Judge Barry Garber, who will recommend that a District Court judge accept it.
Gadola, an executive director at UBS, routinely traveled from Switzerland to the U.S. to meet clients with undeclared accounts, according to the government's criminal complaint. Twelve taxpayers disclosed to the U.S. that Gadola managed their investments, ranging in total value from $18.1 million to $46 million, according to the complaint.
The banker worked from the 1990s through mid-2003 as an executive director for UBS's North America international business, and he serviced hundreds of undeclared accounts held by U.S. taxpayers, according to Gadola's arrest complaint.
100 Accounts
He left in mid-2003 for Basler Kantonalbank, bringing more than 100 accounts from UBS. He later set up an asset-management business in Zurich, according to the complaint.
Twenty-one U.S. taxpayers told the IRS about accounts that the unidentified banker managed, according to the complaint. The accounts ranged in total value from $35.1 million to $101.5 million.
One of Gadola's U.S. clients cooperated with prosecutors and secretly recorded him for the government, according to the complaint.
They met on Nov. 6 at the Mandarin Oriental Hotel in Miami, where Gadola told the client not to disclose his Basler Kantonalbank account to the IRS, according to the complaint.
The Poteroba case is U.S. v. Poteroba, 10-mag-00562, U.S. District Court, Southern District of New York (Manhattan); The Stephanou case is U.S. v. Contorinis, 09-cr-467, U.S. District Court, Southern District of New York (Manhattan). The Gadola case is U.S. v. Gadola, 10-cr-20878, U.S. District Court, Southern District of Florida (Miami). The Vogliano case is U.S. v. Vogliano, 10-cr-327, U.S. District Court, Southern District of New York (Manhattan).