Oct. 7 (Bloomberg) -- David Aufhauser, a former top U.S. lawyer for UBS AG, agreed to pay $6.5 million to settle insider- trading claims by New York Attorney General Andrew Cuomo related to the collapse of the auction rate securities market.

Aufhauser, 57, who once served as general counsel to the U.S. Treasury, sold his holdings of the instruments ``minutes'' after learning nonpublic information about disruptions in that market, Cuomo alleged today in an e-mailed statement.

Cuomo said today his office was investigating ```a number'' of Wall Street executives who acted improperly in connection with auction-rate securities and other transactions. Executives must be held accountable, and monetary penalties are particularly appropriate in light of the $700 billion rescue plan authorized by Congress last week, he said.

``If you're asking the taxpayers to bail out companies, you can't say senior executives who acted improperly are allowed to walk away from the table and take all the money with them,'' Cuomo said in a conference call. ``Any compensation or bonus or parachute, we believe, should be recouped.''

In August, Zurich-based UBS, Switzerland's biggest bank, agreed to pay $150 million and begin buying back $18.6 billion in the failed securities to settle with Cuomo, the U.S. Securities and Exchange Commission and a group of other state regulators. UBS said it will purchase $8.3 billion of the instruments from its clients beginning Oct. 31.

UBS Requirements

UBS was required to help its institutional clients sell an additional $10.3 billion in securities, and it may have to buy them back if they fail to find a market, Cuomo said at the time.

Last Dec. 14, on the Amtrak Acela train from New York to Washington, Aufhauser opened an e-mail about the auction-rate securities market, according to Assistant New York Attorney General David Markowitz.

``That e-mail contained information describing trouble in that market,'' Markowitz said on the conference call. Aufhauser forwarded the message to other attorneys, then sent one to his personal stockbroker.

``I want to get out of arcs,'' Aufhauser wrote, referring to auction-rate certificates. ``Let's talk Monday.'' That Monday, Aufhauser repeated his instruction, and all $250,000 of his auction-rate securities were sold on Dec. 18 and 21, according to the settlement agreement.

`No Personal Profit'

``Aufhauser's December 2007 ARS transaction resulted in absolutely no personal profit,'' according to an e-mailed statement by Tom Johnson, his spokesman. ``We are pleased to have reached this amicable agreement and avoided potentially lengthy litigation.''

Aufhauser didn't admit or deny any wrongdoing.

The settlement involved only New York, Cuomo said today at a press conference.

U.S. Securities and Exchange Commission spokesman John Nester declined to comment on whether the agency may press claims against Aufhauser.

The agency has been ``working closely with our state counterparts to hold companies and individuals accountable for violations of the securities laws,'' Nester said.

States have been investigating since the $330 billion market collapsed in February, leaving investors unable to sell securities that UBS and other brokerages marketed as equivalent to cash. So far, landmark settlements have been made with 10 broker-dealers to buy back some $50 billion in auction-rate securities, Cuomo said.

Seven Accused

In a suit against UBS in July, Cuomo accused seven unidentified UBS executives of selling $21 million in personal holdings of the securities while the company pushed them on customers. Aufhauser, one of the seven, according a person familiar with the case, left after the bank was accused of falsely marketing the bonds as safe, liquid investments.

David Shulman, UBS's global head of municipal securities, also left in the wake of the bank's settlement.

As part of his accord, Aufhauser agreed that for two years he will not practice law in New York, serve as a director or officer of any public company or work in the securities industry. UBS spokeswoman Karina Byrne said Aufhauser left the firm at the end of last month. She declined to comment further.

Aufhauser's settlement includes his paying the state a $6 million 2008 bonus he is due to receive from UBS, plus $500,000 in civil penalties, twice the amount of his auction-rate securities trades, Cuomo said.

To contact the reporter on this story: Karen Freifeld in New York State Supreme Court at kfreifeld@bloomberg.net.

Last Updated: October 7, 2008 16:10 EDT