The lawyer charged in an insider- trading case that U.S. prosecutors now say generated at least $37 million in profits, Matthew Kluger, was granted bail yesterday.
Kluger, 50, who is accused of passing merger-and- acquisition tips stolen from four law firms, appeared in federal court in Newark, New Jersey, where he agreed to post a $1 million bond. He must undergo electronic monitoring and detention at his home in Oakton, Virginia, where he was arrested April 6. Kluger’s parents secured the bond with $500,000 in cash. Kluger’s father, Richard, is a Pulitzer Prize-winning social historian.
Kluger is charged with passing inside data to a middleman who gave it to stock trader Garrett D. Bauer in a scheme spanning 17 years. The middleman, Kenneth T. Robinson, pleaded guilty April 11 and secretly recorded Kluger and Bauer for the Federal Bureau of Investigation last month. On April 6, prosecutors said the illicit profit in the last five years of the scheme was at least $32 million. Yesterday, they said it was at least $37 million.
“The overall number of trades in the scheme, and his profits from the scheme, continue to rise,” Assistant U.S. Attorney Judith Germano told U.S. Magistrate Judge Mark Falk.
Kluger, a bald man with a mustache, appeared at the hearing in handcuffs and a yellow jail jumpsuit. Prosecutors say he helped Robinson and Bauer use nonpublic data to trade ahead of at least 15 corporate transactions involving companies such as Sun Microsystems Inc., 3Com Corp. and Acxiom Corp. (ACXM)
Kluger attorney Alan Zegas said he had met Kluger only yesterday after talking to him earlier on the phone several times. He said he is awaiting the government’s evidence.
“I’ve not received any discovery, nor have I had any opportunity to discuss the charges with Mr. Kluger, nor to do an independent investigation,” Zegas said.
Prosecutors usually have 30 days from the time of an arrest to return an indictment. At the hearing, Zegas agreed to extend that deadline to 60 days. Zegas said he has had no negotiations on a plea agreement.
“If an offer’s made, I always relay it to my client and discuss it,” Zegas said.
Authorities said Kluger passed tips about deals that he learned of when he was an associate for New York-based Cravath, Swaine & Moore LLP from 1994 to 1997 and Skadden, Arps, Slate, Meagher & Flom LLP, another New York firm, from 1998 to 2001. Kluger also passed on tips that he stole from Fried Frank Harris Shriver & Jacobson LLP, where he worked from 2001 to 2002, Robinson said in pleading guilty.
After a hiatus, the scheme resumed in December 2005 and ran until March 2011, when Kluger worked in the Washington office of Wilson, Sonsini, Goodrich & Rosati PC, authorities said.
At yesterday’s hearing, Germano said the illicit proceeds from the scheme when Kluger was at Wilson Sonsini exceeded $37 million. On April 6, prosecutors said it was $32 million, an amount they raised to $34 million when Robinson pleaded guilty.
In announcing the charges on April 6, prosecutors said Bauer made more than $30 million on the scheme, Robinson more than $875,000 and Kluger more than $500,000.
Kluger is charged with securities fraud, obstruction of justice, conspiracy to commit securities fraud, and conspiracy to commit money laundering. He faces as many as 20 years in prison on the most-serious counts.
Kluger appeared April 6 in federal court in Alexandria, Virginia. Yesterday’s hearing was his first in Newark. Bauer is free on $4 million bail and Robinson was released on $2 million bail after his guilty plea.
Prepaid Cell Phones
Authorities said the men used prepaid cell phones to cover their tracks, getting new ones after each deal and disposing of the old ones.
At his guilty plea, Robinson said he gave Bauer inside information that he got from Kluger. Robinson said he told Bauer how many shares he should buy for Robinson and Kluger. Bauer paid Robinson and Kluger in cash, often tens or hundreds of thousands of dollars at a time, that Bauer withdrew from automated-teller machines, Robinson said.
Germano told Falk that Kluger engaged in “deceptions and lies that only got more sophisticated as he feared they would get caught.” After learning of the investigation, he destroyed his computer, iPhone and prepaid cellular phone, while telling Robinson to destroy his phone, Germano said.
Kluger lives with a former partner who is helping him raise their children, Zegas told Falk. The judge said Kluger can leave his house for child care and may undergo mental-health treatment as needed.
Kluger and his partner had twin 9-year-old boys and a 10- year-old son through a surrogate mother, Zegas said in an interview after the hearing.
In 2002, Kluger filed a sex-discrimination lawsuit against Fried Frank, claiming he was harassed at the firm and then fired because he was gay and partners had said they were “not comfortable” working with him. The case settled in 2004, records in New York state Supreme Court show.
Fried Frank spokeswoman Wendy Bernero declined to comment on the lawsuit.
Zegas said in court that Kluger was adopted by “an extraordinarily caring family” and that his biological father died at an early age of a heart condition. Kluger had five stents inserted five or six years ago, Zegas said.
Outside of court, Zegas also said Kluger was charged with disorderly conduct in Virginia about a year ago for allegedly destroying property valued at less than $1,000. Kluger was ordered to pay a $100 fine, Zegas said.
The case is U.S. v. Bauer, 11-mj-3536, U.S. District Court, District of New Jersey (Newark). The Robinson case is U.S. v. Kenneth Robinson, U.S. District Court, District of New Jersey (Newark).
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