Kenneth T. Robinson pleaded guilty today to his role in an insider trading scheme spanning 17 years that relied on merger-and-acquisition tips stolen from four law firms to make at least $34 million in illicit profits.
Robinson, 45, admitted in federal court in Newark, New Jersey, to charges of securities fraud and conspiracy to commit securities fraud. He said he was the middleman between attorney Matthew H. Kluger and stock trader Garrett D. Bauer, who were arrested April 6.
Robinson, a mortgage broker who secretly recorded Bauer and Kluger for the Federal Bureau of Investigation, is cooperating with U.S. investigators, U.S. Attorney Paul Fishman said after the plea hearing.
“He is continuing to give information to the government about all of the deals he is aware of,” Fishman said in an interview.
The three men used nonpublic data to trade ahead of at least 15 corporate transactions involving companies such as Sun Microsystems Inc., 3Com Corp. and Acxiom Corp., prosecutors said. Bauer made more than $30 million on the scheme, Robinson more than $875,000 and Kluger more than $500,000, Fishman said last week.
Robinson told U.S. District Judge Katharine Hayden that he conspired with Bauer and Kluger from 1994 to 2011 and that he passed along company secrets stolen by Kluger from law firms. He was released on $2 million bail after today’s hearing.
At a later hearing, Bauer was released on a $4 million bond secured by $2 million in cash. He must undergo electronic monitoring while staying at his New York apartment with his mother. Assistant U.S. Attorney Matthew Beck said the conspirators gained at least $34 million in illicit profits, or $2 million more than prosecutors previously identified.
Robinson, of Long Beach, New York, signed a plea agreement on April 5, the day before Kluger and Bauer were arrested. Robinson admitted to most of the allegations that the FBI made in the criminal complaint against Kluger and Bauer.
His attorney, Francis J. Murray, said Robinson, who first appeared in court in handcuffs, surrendered this morning to authorities. Murray declined to comment further after the hearing.
Bauer attorney Michael Bachner declined to comment on Robinson’s guilty plea.
“We’re pleased that we were able to secure Mr. Bauer’s release on bail. We now look forward to reviewing the evidence and preparing our defense.”
Robinson faces 70 to 87 months in prison under advisory sentencing guidelines. The judge could impose a lower term based on his cooperation.
He admitted passing on tips about deals that Kluger learned about when he worked as 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. He also said Kluger passed on tips that he stole from Fried Frank Harris Shriver & Jacobson LLP after he left Skadden Arps.
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.
During the hearing, Robinson admitted that “more than 10 years ago,” he gave inside information to other people besides Bauer as the basis for trades. Robinson didn’t identify them.
Robinson said that early in the scheme, Kluger disclosed information about deals on which he had personally worked.
“As the scheme developed, and in an effort to avoid law enforcement detection, Kluger was careful to steal and disclose information about deals on which he did not personally work, but about which he learned by searching the law firms’ computers systems,” according to Robinson’s charging document.
After getting inside information from Kluger, Robinson passed it to Bauer, Robinson admitted. Robinson said he instructed Bauer how many shares he should buy for Robinson and Kluger. Bauer paid Robinson and Kluger in cash, often in tens or hundreds of thousands of dollars at a time that Bauer withdrew from automated teller machines, Robinson said.
To prevent the scheme from being detected, the men used pay phones and prepaid mobile phones, Robinson said.
Robinson said that in January 2011, Kluger stole information from Wilson Sonsini about CSR Plc’s planned merger with Zoran Corp. Robinson said he passed it to Bauer, who bought 1.46 million shares of Zoran and sold them for a profit of $1.96 million after the merger was announced Feb. 21. On March 3, he said, Bauer gave Robinson $182,000 in cash to split with Kluger.
Robinson agreed today to forfeit that cash to authorities.
He also pleaded guilty to two securities fraud counts. One involved the purchase of 65,000 shares of 3Com stock in late 2009 before its acquisition by Hewlett-Packard Co.; the other was the purchase of 32,000 shares of McAfee Inc. in July and August 2010 before its acquisition by Intel Corp.
Bauer and Kluger had been in custody since their arrest.
U.S. Magistrate Judge Madeline C. Arleo granted Bauer bail today after his mother, brother and father agreed to cosign his $4 million bond.
Beck, the prosecutor, said agents seized Bauer’s TD Ameritrade Holding Corp. account with $11.6 million, a Goldman Sachs Group Inc. clearing account with $9 million, seven personal accounts at Citigroup Inc. with $290,000, and $23,000 in cash.
The case is U.S. v. Kenneth Robinson, U.S. District Court, District of New Jersey. The Bauer case is case is U.S. v. Bauer, 11-mj-3536, U.S. District Court, District of New Jersey (Newark).