Kluger Admits Stealing Law-Firm M&A Secrets in Trading Scheme

Attorney Matthew Kluger, admitting to helping fuel an insider-trading scheme that prosecutors said generated $37 million in illegal profits, pleaded guilty to stealing corporate merger tips from four law firms.

Kluger, was the third defendant to plead guilty, admitting in federal court in Newark, New Jersey, that he stole nonpublic data on about 30 corporate transactions over 17 years. He said he passed tips to middleman Kenneth Robinson, who gave them to trader Garrett Bauer to buy shares. When the deals went public, Bauer sold shares and gave cash to his partners.

Kluger, 50, “did it for selfish reasons that he recognizes and feels terrible about,” his attorney, Alan Zegas, said in an interview after yesterday’s court hearing. Kluger passed along tips gained from his work at four law firms including Skadden, Arps, Slate, Meagher & Flom LLP and Wilson, Sonsini, Goodrich & Rosati PC.

Prosecutors said the scheme involved companies such as Sun Microsystems Inc., 3Com Corp. and Acxiom Corp. (ACXM) They said Bauer, who pleaded guilty Dec. 8, made more than $30 million in profit, while Robinson and Kluger each made less than $1 million. Robinson pleaded guilty April 11 after secretly recording the other two men for the Federal Bureau of Investigation.

Kluger only learned after his arrest on April 6 that Bauer was trading “far in excess of what he said he was doing” and wasn’t splitting the profits equally, as the men agreed, Zegas said after the hearing. “He would not have agreed if he knew what Mr. Bauer was trading.”

‘Did Not Know’

Outside the courtroom, Kluger said: “I did not know Bauer.”

Zegas disputed the government’s claim that it was a $37 million scheme. He said the length of Kluger’s sentence will depend on the amount of profit he could have “reasonably foreseen” he would make.

Like Bauer, Kluger pleaded guilty to securities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and obstruction of justice. He also agreed to forfeit $415,000 in cash.

“Not only did Matthew Kluger defraud the investing public, he betrayed the colleagues and clients who depended on his confidentiality in some of the biggest deals of the last decade,” U.S. Attorney Paul Fishman said in a statement.

He faces as many as 20 years in prison on all but the conspiracy to commit securities fraud count, which carries a five-year term. Kluger, who is free on $1 million bail, is scheduled to be sentenced April 9 by U.S. District Judge Katharine Hayden.

Searched Computers

In his plea, Kluger said the scheme started in 1994, when he first worked as an associate for New York-based firm Cravath, Swaine & Moore LLP. Kluger at first passed tips only on those deals on which he worked. As the scheme developed, Kluger stole information about deals on which he didn’t work, and he learned about by searching the firm’s computers.

The scheme continued when Kluger worked from 1998 to 2001 at Skadden Arps, another New York-based firm, and when he worked from 2001 to 2002 at Fried Frank Harris Shriver & Jacobson LLP, Kluger admitted. It began again in December 2005 and ran until March 2011, when Kluger worked in the Washington office of Wilson Sonsini.

Kluger said the men used prepaid cellular phones and pay phones to discuss the deals and elude detection. After learning in March of the probe by the FBI and Internal Revenue Service, Kluger destroyed a cellular phone, a computer and an iPhone he used to look up stock quotes, he said.

Robinson, 45, of Long Beach, New York, was a mortgage broker who secretly recorded Kluger and Bauer, a New York man.

“I really would like to see this phone go bye-bye ASAP, like maybe tonight if you can,” Kluger told Robinson, according to court papers. “Do you want this to be our undoing?”

Bauer forfeited about $20 million in bank accounts and trading accounts, as well as a $6.65 million condominium on the Upper East Side of Manhattan and an $875,000 home in Boca Raton, Florida. Prosecutors said the properties had liens on them.

Kluger lives in Oakton, Virginia, and has twin boys who will soon turn 10 and an 11-year-old son.

The case is U.S. v. Bauer, 11-cr-03536, U.S. District Court, District of New Jersey (Newark).

To contact the reporter on this story: David Voreacos in Newark at dvoreacos@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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