Accused middleman admits guilt in U.S. insider case

By @ibtimes on

A mortgage broker who secretly recorded two friends accused of trying to cover up one of the biggest U.S. insider trading cases on record pleaded guilty to involvement in the 17-year scheme.

Kenneth Robinson, 45, admitted to being a middleman who supplied information to trader Garrett D. Bauer about pending mergers, mainly involving technology companies such as Hewlett-Packard Co and Intel Corp.

He said he received the tips from corporate lawyer Matthew H. Kluger, who is accused of stealing the details from law firms where he worked, including Wilson Sonsini Goodrich & Rosati PC, known for representing Silicon Valley companies.

Kluger and Bauer were arrested last week for their roles in what prosecutors on Monday called a $34 million scheme, up from the $32.2 million they had estimated last week. These defendants have not yet entered pleas.

Bauer made most of the illegal profit, while Robinson made about $875,000 and Kluger made $500,000, investigators said.

Robinson is the unnamed co-conspirator cited in the criminal complaint against Bauer and Kluger, who were respectively 43 and 50 at the time of their arrests.

Prosecutors have accused the two men of reaping illegal profits from trades based on tips about 11 pending mergers and investments that Kluger learned of while employed at Wilson Sonsini, which he left last month.

The scheme was uncovered after Robinson's home in Long Beach, New York, was raided last month. Robinson thereafter let investigators secretly record his conversations with Bauer and Kluger, court papers show.

In those calls, the men discussed destroying evidence, including the disposal of computer records and throwaway phones, and whether money could be cleaned in a washing machine to rid it of fingerprints, according to court papers.

ROBINSON ADMITS TO FRAUD, CONSPIRACY

Robinson admitted to personally making trades in 2009 and 2010 on two transactions based on tips from Kluger -- Hewlett-Packard's takeover of 3Com Corp and Intel's purchase of McAfee Inc -- for an estimated $693,000 profit.

He also admitted to tipping Bauer to British chipmaker CSR Plc's planned takeover of Zoran Corp, which was announced in February, and accepted $182,000 from illegal trades in the imaging company. Robinson will forfeit this sum.

At his hearing, Robinson said he also passed information to someone other than Bauer more than 10 years ago.

Robinson pleaded guilty to two counts of securities fraud and one count of conspiracy before U.S. District Judge Katharine Hayden at a hearing Monday in federal court in Newark, New Jersey. He was released on $2 million bail.

The defendant could face 70 to 87 months in prison under his plea agreement when he is sentenced on July 26.

Robinson turned himself in Monday morning, his lawyer Francis Murray said.

In an afternoon hearing before U.S. Magistrate Judge Madeline Cox Arleo, Bauer was released on $4 million bail into the custody of his mother. He will be subject to home confinement with electronic monitoring.

Both defendants wore handcuffs at their hearings, and Bauer was also shackled at the ankles.

CASE MAY GROW

Prosecutors have said Kluger began leaking merger tips as early as 1994, including when he worked as an associate at the law firms Cravath Swaine & Moore LLP and Skadden, Arps, Slate, Meagher & Flom LLP.

These earlier leaks are not now part of the criminal case.

Robinson said he also obtained tips from Kluger when the lawyer worked at a fourth law firm, Fried, Frank, Harris, Shriver & Jacobson LLP, which was not named in court papers.

Fried Frank said it is cooperating with the investigation, and has policies to protect clients' confidential information.

Rachel Martin, a lawyer for Kluger, declined to comment.

Scott Splittgerber, a lawyer for Bauer, declined to comment after his client's hearing.

Prosecutors have indicated that Robinson's cooperation may help them expand their case against Bauer, who lives in New York, and Kluger, a resident of Oakton, Virginia.

In many criminal cases, the testimony of one person in a scheme is instrumental in our investigative and prosecution strategy, New Jersey U.S. Attorney Paul Fishman said after Robinson's hearing.

The case also comes as prosecutors pursue a large number of high-profile insider trading cases, including against Raj Rajaratnam, the Galleon Group hedge fund founder.

Rajaratnam has pleaded not guilty. He is on trial in New York on charges of securities fraud and conspiracy.

The case is U.S. v. Robinson, U.S. District Court, District of New Jersey, No. 11-cr-00223.

(Editing by Tim Dobbyn, Steve Orlofsky and Gerald E. McCormick)

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