Former UBS senior traders fined for falsifying trades

Glen Grossmith, a former executive director, equity sales trading at UBS, was fined $75,000, and must pay $25,000 in costs. Grossmith also is suspended from trading on Canadian equity markets for three months, after which he must be strictly supervised for six months.

In the approved settlment agreement, Horcsok admitted that during Feb. 4-9, 2005, he failed to fulfill his supervisory responsibilities.

Grossmith admitted that during Feb. 4-9, 2005, he engaged in conduct inconsistent with just and equitable principles of trade.

Both men also admitted to engaging in conduct which resulted in UBS Securities Canada Inc. contravening trading rules.

On Feb. 4, 2005, Mark Webb, a trader employed with UBS Securities LLC in Stanford, Conn. received an order to buy 120,000 Phelps Dodge Corp. (PD.N) from a U.S. client. After filling 6,000 shares of the order, the client cancelled the outstanding order and moved it to another dealer for completion. Webb became angry and bought 10,000 shares of PD.N as principal. When the client complained to UBS LLC, Webb stated that the 10,000 shares were purchased for a Canadian client when in fact they were not.

Webb then contacted Horcsok and, without disclosing all of the details of his conduct, asked for Horcsok’s assistance in finding a Canadian trade ticket time stamped around the time of Webb’s purchase of the 10,000 PD.N and a Canadian buyer for the 10,000 shares. Horcsok related Webb’s requests to Grossmith, who found a Canadian purchaser for the shares. Horcsok was Grossmith’s direct supervisor.

At Webb’s request, some of his and Horcsok’s communications were deliberately conducted on untaped telephone lines at UBS Securities Canada.

With Horcsok’s knowledge, Grossmith altered an existing trade ticket for another Canadian client’s purchase of a TSX-listed security to reflect an order to purchase 10,000 shares of PD.N at 9:43 am that morning by the Canadian client solicited by Grossmith just prior to 3:00 pm. Grossmith crossed out the symbol of the TSX listed security and added in “PD” for PD.N and changed the client information.

The trade ticket that was altered by Grossmith was obtained by Horcsok from another trader on the desk, whom Horcsok also supervised. Grossmith prepared an electronic ticket for the purchase by the Canadian client stating the purchase of 10,000 PD.N was unsolicited when it was solicited.

Grossmith also created a false and misleading “Chat” communication to Webb and made false statements to a UBS LLC employee, which continued the charade that Webb had been provided with an order to purchase 10,000 PD.N for a Canadian client that morning.

Grossmith also entered, and later edited, a Trader Note in the electronic trading system at UBS Securities Canada which perpetuated the false story that Webb had been provided a Canadian client order for 10,000 PD.N earlier that morning. Horcsok was aware that Grossmith altered a Canadian trade ticket. Subsequently, Horcsok destroyed the altered trade ticket.

Horcsok was not forthcoming about all of the circumstances of his and Grossmith’s involvement in this matter when he spoke with the president of UBS Securities Canada on the evening of Feb.4, 2005. Neither Horcsok nor Grossmith were forthcoming when they were questioned by compliance personnel from UBS Securities Canada and UBS LLC on Feb. 7 and 8, 2005. On February 9, 2005, Horcsok disclosed the circumstances relating to his and Grossmith’s involvement in this matter to all the compliance personnel involved.

As a result of these events, Horcsok and Grossmith were dismissed from UBS Securities Canada on Feb. 22, 2005.

RS has concluded that there are no grounds for any disciplinary action against UBS Securities Canada relating to the conduct of two traders.

“The actions of these senior traders to cover up a willful act of a colleague were unethical and unacceptable,” said Maureen Jensen, vp, market regulation, eastern region at RS. “They knowingly abused the trust of a Canadian client and risked the integrity of the Canadian equity market when they deliberately falsified trading information and created a misleading audit trail.”