Pair charged with insider trading

February 5, 2009 9:18:08 PM PST
A former employee for the UBS investment bank fed his friends inside tips about the 2006 sale of Albertson's grocery store chain and other deals, allowing them to gain more than $7 million from illicit stock trades, authorities said Thursday. The FBI arrested two of the traders, Joseph Contorinis, a former hedge fund manager for the New York-based investment bank Jefferies & Co. Inc., and Michael Koulouroudis early Thursday in New York. A third defendant, George Paparrizos, was picked up in Foster City, Calif.

Contorinis, Koulouroudis and Paparrizos made initial court appearances to face conspiracy and securities fraud charges but didn't enter pleas, prosecutors said.

Koulouroudis was released on a $900,000 personal recognizance bond. He must post $500,000 in cash or property by Feb. 17. He surrendered his Greek and U.S. passports and can't travel outside the New York-New Jersey-Connecticut region.

Contorinis' personal recognizance bond was set at $7 million, with a requirement that he post $5 million in cash or property to be released. He was still being held Thursday evening. If released, he will be under electronic home monitoring and his travel will be restricted to New York and Florida.

Paparrizos was released on a $1 million personal recognizance bond, secured by $200,000 in cash or property.

There was no immediate response to phone messages left with their lawyers.

Court papers indicate the UBS employee, Nicos Achillea Stephanou, has been cooperating with investigators as part of a plea deal following his arrest in December. His attorney declined comment on Thursday.

A statement from UBS said the bank "has assisted and will continue to assist the authorities in their investigation into the alleged actions of a single UBS employee."

The insider trading scheme mostly revolved around the sale of Albertson's Inc. to a consortium made up of Minneapolis-based Supervalu Inc., CVS Corp. of Rhode Island and New York-based Cerberus Capital Management.

Stephanou, 34, "was a member of a team at UBS that advised Cerberus on the acquisition and therefore was privy to material nonpublic information about the acquisition of (Albertson's) prior to its public release," the Securities and Exchange Commission said in a civil complaint.

During the talks, Stephanou was in constant contact by phone with Contorinis, 44, a former colleague, and Koulouroudis, 59, a close family friend, and Paparrizos, 37, a friend from college, court papers said.

Contorinis used the information to "make timely purchases and sales" of hundreds of thousands of shares of Albertson's stock, resulting in a $7.2 million windfall for his hedge fund, court papers said.

Authorities say Koulouroudis made $132,000 off the Albertson's deal. He also used tips from the banker about a possible sale of roofing and building materials maker ElkCorp to make another $138,000, court papers said.

A Jefferies & Co. spokesman said Thursday that Contorinis left the firm about a year ago but declined further comment.

If convicted, the defendants each would face up to 20 years in prison.