St.Gallen officials use insider information for private stock transactions

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accusation

St.Gallen officials are said to have used insider information for private stock transactions

A former administrator of St.Gallen pension assets has to answer in court. He is said to have coordinated his private stock transactions with the official transactions. His profit: over 3.1 million Swiss francs.

A former St.Gallen official has to answer to the court for insider trading.

key stone

Big post for a former employee of the finance department of the canton of St.Gallen and the St.Gallen pension fund: the manager of pension assets is said to have harmed his employer and enriched himself unlawfully. This is the allegation of the Federal Public Prosecutor’s Office (BA). She has filed charges against him, as she announced on Wednesday.

Specifically, she accuses him, among other things, of multiple unfaithful conduct of office and business management as well as the exploitation of insider information. He is also said to have engaged in money laundering. The BA demands a sentence of four years and refers to the presumption of innocence in the notification.

Plenty of freedom for managers of St.Gallen pension assets

The former civil servant worked for the cantonal finance department from 2003 to 2014 and for the St.Gallen pension fund from 2014 to 2018. In both functions, as a portfolio manager, he was responsible for managing pension funds in the second pillar of cantonal employees, as the BA writes.

The man enjoyed a lot of freedom and was able to independently implement the investment strategy of the fund he managed. For example, he could decide for himself which stock positions should be built up or reduced and when and to what extent the transactions should take place.

According to the indictment, he used this knowledge for himself. According to this, from 2008 to 2018 he coordinated his private stock transactions with the stock transactions he had officially made. The BA speaks of “front running” in this regard. For example, the man opened private stock positions a few days or on the day the order was placed for the funds he managed. When the fund then bought or sold, the price changed. The accused used this to sell his private positions at a profit.

Earned profit of over 3.1 million

For the BA it is clear: “This coordinated trade in the same shares was carried out with the intention of using confidential knowledge for one’s own benefit and thus gaining an unlawful financial advantage.” She speaks of hundreds of transactions relevant to the prosecution, with which the man made private profits of over 3.1 million francs. Not only would he have had to disclose the profits to his former employers, according to the BA, they would also have granted them.

In addition, he did not declare the assets to the tax authorities. Together with numerous cash withdrawals, he made it difficult for the authorities to secure, confiscate and withdraw the funds. Hence the accusation of money laundering.

Use procedures to clarify open questions about «front running»

The indictment goes back to a report by the financial market supervisory authority (Finma) at the end of 2017. The BA now hopes that the procedure will clarify open questions in legal theory and practice. Specifically, it is a question of whether and to what extent “front running” can be classified as insider trading.

At the same time, the procedure represents a new form of coordination and cooperation between the federal and cantonal criminal prosecution authorities. Originally, the proceedings were conducted by cantonal public prosecutors. Since it could be about insider trading, the BA had to take over.

In order to avoid effort and in the interests of procedural economy, the prosecutors in charge of the proceedings were appointed by the BA as extraordinary federal prosecutors. In this way, they were able to continue the proceedings under the responsibility of the federal government.

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