DOJ statistics for last year show that the number of prosecutions for financial crimes has dropped over the past six years, including the number of securities fraud charges. But, Preet Bharara, the U.S. Attorney for Manhattan, says that his office is focusing on white collar crime and that it has a number of cases in the pipeline. Nobody would doubt the focus of the office after the filing of the blockbuster and seemingly ever expanding Galleon insider trading cases. Taking its cue from Mr. Bharara, the SEC has also continued to expand its Galleon-related cases as discussed here.

The pipeline at the New York U.S. Attorney’s Office seems to be longer than anyone realized, however. Before Galleon, perhaps the most trumpeted insider trading cases since the 1980s were the criminal and civil actions revolving around former UBS analyst Mitchel S. Guttenberg, discussed here. Those cases appeared to have been resolved with guilty pleas and convictions in the criminal cases and consent decrees in the civil enforcement actions. It is now clear however that the investigations are continuing. Yesterday, Mr. Bharara’s office unsealed a two-count criminal information stemming from the Guttenberg cases which named David Slaine, a former employee of hedge fund Chelsey Capital as a defendant. U.S. v. Slaine, (S.D.N.Y. Unsealed Feb. 2, 2010). The SEC filed a parallel action. SEC v. Slaine, Civil Action No. 10 CV 754 (S.D.N.Y. Filed Feb. 10, 2010).

Mr. Slaine was charged with, and pleaded guilty to, participating in an insider trading scheme based on material nonpublic information from Mr. Guttenberg. Mr. Slaine pleaded guilty to conspiracy and securities fraud charges in December 2009, but the indictment remained sealed until yesterday.

According to the court papers filed by the Government and the SEC, Mr. Slaine received information about UBS investment recommendations prior to their release to the public indirectly from Mr. Guttenberg. Specifically, between 2001 and 2006 Mr. Guttenberg provided Erik Franklin, a portfolio manager for Q Capital Investment Partners, Lyford Cay Capital and an analyst for Chelsey Capital, with prerelease information about UBS investment recommendations. Mr. Franklin in turn passed the information on to Mr. Slaine who traded both for his employer and in his personal account after receiving the information.

In some instances, the information was about a downgrade recommendation. For example, on May 22, 2002 Mr. Slaine sold short 15,000 shares of Principal Financial in his personal account. The next day UBS announced it downgrade recommendation. In other instances, the information was about an upgrade. On August 14, 2002, for example, Mr. Slaine purchased 15,600 shares of Cell Therapeutics in his personal account. The next day UBS announced that it was changing its recommendation on the stock from “buy” to “strong buy.” Overall Mr. Slaine made over $3 million in profits for Chelsey as a result of the information he obtained from Mr. Guttenberg through Erik Franklin. In his personal account during 2002 he made over 20 trades yielding more than $500,000 in profits from the UBS information.

In the criminal case a date for sentencing has not been set. The SEC case has not been resolved. Previously, the SEC settled insider trading charges with Chelsey Capital and Mr. Franklin in connection with the resolution of the Guttenberg case as discussed here. See also Litig. Rel. 21403 (Feb. 2, 2010).