SEC Reaches $33 Million Settlement in Insider Trading Case
A stock trader, a lawyer and a mortgage broker who all pleaded guilty to an insider-trading scheme that spanned 17 years agreed to pay $33 million to resolve a U.S. Securities and Exchange Commission lawsuit.
Stock trader Garrett D. Bauer will pay $31.7 million, mortgage broker Kenneth T. Robinson will pay $845,235 and attorney Matthew H. Kluger will pay $516,510, according to a statement by the SEC. The agency sued the men in federal court in Newark, New Jersey, where they pleaded guilty last year.
They admitted Kluger stole nonpublic data on about 30 corporate transactions while working at four law firms, including Skadden, Arps, Slate, Meagher & Flom LLP and Wilson, Sonsini, Goodrich & Rosati PC. Kluger passed tips to Robinson, who gave them to Bauer, who made trades. The companies included Sun Microsystems Inc., 3Com Corp. and Acxiom Corp. (ACXM)
“Bauer, Kluger and Robinson schemed to outsmart law enforcement by structuring their relationships and communications to avoid detection and frustrate insider-trading detection mechanisms,” Robert Khuzami, the SEC’s enforcement director, said in a statement.
The men consented to final judgments that are subject to a judge’s approval, according to the statement. Bauer has agreed to a bar on working as a broker, while Kluger agreed that he won’t appear before the SEC as an attorney. All three men are scheduled to be sentenced on June 4 in Newark.
Banks Accounts, Condo
Bauer already 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. He declined to comment on the SEC statement.
“In his efforts to resolve the insider-trading charges with the Securities and Exchange Commission, Mr. Bauer has agreed to make full disgorgement of the gross profits that he made,” said Bauer attorney Michael Bachner.
Robinson attorney Francis J. Murray and Kluger attorney Alan Zegas didn’t immediately return calls seeking comment.
Robinson, 45, of Long Beach, New York, was a mortgage broker who secretly recorded Kluger and Bauer for the U.S. Federal Bureau of Investigation. All three were criminally charged in April 2011. The SEC sued Kluger and Bauer last year and filed a complaint against Robinson today. In two instances, according to the SEC, Robinson made trades without Bauer.
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 that 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 mobile phones and pay phones to discuss the deals and elude detection. After learning in March 2011 of the probe by the FBI and the U.S. Internal Revenue Service, Kluger destroyed a mobile phone, a computer and an iPhone he used to look up stock quotes, he said.
The cases are Securities and Exchange Commission v. Kluger, Bauer, 11-cv-01936 and SEC v. Robinson, 12-cv-02438, U.S. District Court, District of New Jersey (Newark).
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