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High-flying Frankfurt fund manager admits large-scale insider trading

Union Investment GmbH updates

A senior fund manager embarked on wide-ranging insider trading after feeling “offended” by a smaller-than-expected pay rise and suffering large losses from his investments in Wirecard, he told judges in Frankfurt on Wednesday.

The 45-year-old is at the centre of an insider trading scandal that shocked Germany’s asset management community when he was arrested by police a year ago.

The defendant was a senior portfolio manager for 16 years at Frankfurt-based Union Investment, one of Germany’s top asset managers, overseeing actively managed equity funds with €31bn in assets. Seen as a rising star at the company, he was hailed in the financial press.

The married father of two admitted in court on Wednesday to “front-running” investment decisions he made on behalf of his employer on 55 occasions between April and September last year, making €8.1m in net profit.

He could face up to five years in prison but prosecutors have indicated they would ask for closer to four.

The fund manager started executing private trades at his desk at Union’s headquarters. “As everyone else was working from home, it was only me and one junior colleague in the office,” he told five judges at Frankfurt district court.

Sitting at his work computer, and using an undisclosed account at a German online broker with large amounts of leverage, he started buying and selling derivatives aimed at retail investors on blue-chips that he traded for Union, including Infineon, Deutsche Post and MTU.

“This was just a matter of a few mouse clicks for me,” he told judges.

On an ordinary trading day, he would buy and sell shares worth €500m on behalf of his employer and was aware that large orders placed by Union moved share prices, on average by 0.6 per cent to 0.8 per cent.

In one example of his front-running, he spent €913,000 on call options for shares in Deutsche Post just seconds before placing a large order of the stock on behalf of Union that moved the share price by 2.7 per cent. He sold the options within an hour, making a profit of €227,000.

The defendant told the judges that he started insider trading as he was deeply frustrated by his pay of €440,000 in 2019. After receiving only half the pay rise he had hoped for in early April 2020, he felt “offended” and decided to recoup the rest himself.

Another motivation, he said, was to make good for heavy losses he suffered with private and professional investments in Wirecard. The 45-year-old was one of the main drivers of Union’s ill-fated move to become one of the largest shareholders of the now-defunct payments company in early 2020.

He said that initially he only aimed to make some €500,000 with his side investments: “Things then got out of control. It became an addiction. Every successful trade generated a feeling of elation and superiority.”

The profits were never spent, he said, as he “had no idea what to use the money for”.

He was arrested in September 2020 after his broker flagged suspicious trades to BaFin, the German regulator.

The former fund manager also admitted to sharing insider information about looming trades with a long-time friend and analyst at Hauck & Aufhäuser, a private bank. The friend, also 45 years old, traded on that information 29 times, making €380,000. He was arrested in January 2021 after police discovered chat messages between the two. He also faces potential prison time.

The two defendants lost their jobs after the trades were uncovered, were temporarily in police custody and now work outside the financial sector. They both said they “deeply regret” their actions, and don’t have any intentions to work in the financial industry again.

Union declined to comment. Hauck & Aufhäuser said the alleged trading of its former employee was unrelated to his work for the bank and involved private brokerage accounts that were not linked to its system.

The court case continues.

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