Feb. 26 (Bloomberg) -- Former Merrill Lynch & Co. analyst Stanislav Shpigelman, sentenced to prison for insider trading, says ``false promises, deception, intimidation and flattery'' led him to leak secret information on pending deals.

Shpigelman, 24, a former analyst in Merrill's mergers-and- acquisitions division, was sentenced last month to 37 months in jail after pleading guilty to charges that he tipped two junior employees at Goldman Sachs Group Inc. to news of pending mergers.

In legal papers made public on Feb. 21, a lawyer for Shpigelman offered a glimpse into how then Goldman fixed-income associate Eugene Plotkin and ex-Goldman analyst David Pajcin persuaded Shpigelman to betray Merrill and help them implement an alleged multimillion-dollar insider trading scheme. Merrill is the third-largest U.S. securities firm by market value.

``This combination of intimidation and deception -- and not the receipt of large sums of money -- are what drove Mr. Shpigelman's limited involvement in the insider trades made by Plotkin and Pajcin,'' lawyer Mary Mulligan wrote in a legal brief seeking leniency for Shpigelman, who lives in Brooklyn, New York.

U.S. prosecutors have levied charges against Plotkin, Pajcin and others in the insider trading plot. Pajcin, who's cooperating with the government, may testify at an April trial against Plotkin, who earned at least $6.4 million, according to prosecutors.

A New Jersey mailman, Jason Smith, admitted in December that he leaked secret information to Plotkin and Pajcin from a grand jury on which he was serving. Separately, a worker at a Wisconsin printing plant, Nickolaus Shuster, said in October that he tipped Plotkin and Pajcin to the names of companies about to appear in a magazine.

Like the Movies

In 2003, Plotkin, then 26, shot ``One Way,'' a feature-length independent film he wrote, produced, directed and starred in, playing a junior finance employee framed for stealing millions of dollars from a client and for murder. Performing as a drug dealing was Pajcin, then 29. The real-life story was different.

Shpigelman, a ``mole inside Merrill Lynch,'' according to prosecutors, was charged with leaking word of six pending deals. He admitted tipping Plotkin and Pajcin to one of them, Adidas- Salomon AG's $3.67 billion purchase of Reebok International.

Martin Schmulker, a lawyer for Plotkin, who has pleaded innocent, didn't immediately return a call. Merrill spokesman Mark Herr declined to comment. Pajcin's lawyer, Jesse Siegel, didn't immediately return a call.

Shpigelman ``deeply regrets what he's done,'' Mulligan said today.

Introductions

Shpigelman was a 19-year-old college student studying abroad when his sister introduced him to Plotkin, her Goldman colleague, Mulligan wrote in her brief. Each had emigrated from Russia as a child, and they stayed in touch after Plotkin unsuccessfully sought a Goldman internship for the aspiring banker, Mulligan said.

Shpigelman began work at Merrill in July 2004, and a few months later, during a meeting at a lower Manhattan sauna called Spa 88, Plotkin recruited Shpigelman for the insider scheme, the Securities and Exchange Commission said in a lawsuit.

``Plotkin and Pagcin were older, more experienced industry veterans who insinuated their way into Mr. Shpigelman's life by promising the sort of career mentorship that Mr. Shpigelman so desired,'' Mulligan said.

Soon, the leaks began. When Shpigelman returned from Cincinnati, where he'd delivered documents for a potential merger between The Gillette Co. and Procter & Gamble Co., Plotkin and Pajcin peppered him with questions, Mulligan wrote.

`Initially Resisted'

``Shpigelman initially resisted,'' the lawyer said. Eventually, he ``confirmed the potential for the P&G/Gillette merger by noting that P&G `was buying a big razor.'''

Plotkin and Pajcin traded on the tip and lost money when the deal was postponed, Mulligan said. Still, they now had leverage over Shpigelman, Mulligan argued in the brief. They warned of ``negative consequences'' for him and his family if he didn't pass along the revised merger date, and they said Shpigelman could be fired for leaking the earlier news, she wrote.

``The combination of the intimidation brought to bear by Plotkin and Pajcin, and Mr. Shpigelman's desire to stay in Plotkin's and Pajcin's good graces led him to agree to provide them with additional information,'' Mulligan wrote. ``Plotkin and Pajcin then traded on this new information.''

Shpigelman didn't do any trading, and over the eight-month scheme, he pocketed just $10,000 that Pajcin gave him, Mulligan said. In August 2005, Plotkin and Pajcin said they'd stop squeezing Shpigelman for secrets if he'd provide them a tip ``one more time,'' she said.

Pajcin's Aunt

The scheme began to unravel in August 2005 when the SEC claimed Pajcin's 63-year-old Croatian aunt acquired nearly 2,000 options to buy Reebok shares two days before its merger. Plotkin and Shpigelman were arrested in April 2006.

At Shpigelman's sentencing in January, Assistant U.S. Attorney Benajamin Lawsky disputed his claim that he was ``pressured'' to leak information.

``Mr. Shpigelman did this for the oldest reason in the book -- greed -- and his desire to make bundles and bundles of money,'' Lawsky said.

Shpigelman, who took a job with a moving company after his arrest, must report to prison on March 9. Mulligan declined to say where he will be jailed.

The case is U.S. v. Shpigelman, 06-CR-586, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in New York at dglovin@bloomberg.net.

Last Updated: February 26, 2007 16:08 EST