Two men have been charged with insider trading based on information stolen from three of the most prominent U.S. law firms specializing in mergers and acquisitions, federal prosecutors said.
Prosecutors said the information was stolen from the law firms Wilson Sonsini Goodrich & Rosati; Cravath Swaine & Moore LLP, and Skadden, Arps, Slate, Meagher & Flom LLP, all of which had employed the defendant Matthew Kluger, a lawyer.
Kluger and co-defendant Garrett Bauer, a trader, reaped more than $32.2 million of profit from their 17-year conspiracy to invest in a variety of stocks, such as technology companies McAfee Inc, Sun Microsystems Inc and 3Com Inc, according to a complaint filed with the federal court in Newark, New Jersey.
Prosecutors said Kluger regularly stole information about anticipated corporate mergers and acquisitions from his law firms. They said he would then pass the information to an unnamed co-conspirator, who would then give it to Bauer with instructions on how many shares to buy for the three of them.
The pair invested more than $109 million in the scheme, which ran from 1994 through this March, the complaint said.
The news follows dozens of arrests since October 2009 relating to federal allegations of insider trading focused on hedge funds. One-time billionaire Raj Rajaratnam, who founded the hedge fund firm Galleon Group, is on trial in Manhattan in Wall Street's biggest insider trading case in two decades.
Prosecutors said Bauer worked at a variety of trading firms, most recently at Lighthouse Financial Group from about June 2009 through roughly August 2010.
Lighthouse also once employed the broker Michael Kimelman, who was arrested in 2009 in connection with the hedge fund insider trading probe. Kimelman has been represented in that case by lawyers at Wilson Sonsini, court records show.
Kluger lives in Oakton, Virginia, and Bauer in New York. It is unclear whether they have lawyers for their defense.
Kluger did not immediately return a call to his home seeking comment. Bauer could not immediately be reached for comment. Wilson Sonsini did not immediately return a request for comment. Representatives of Cravath and Skadden had no immediate comment.
Prosecutors charged Kluger and Bauer with 17 counts, including 11 counts of insider trading, four counts of obstruction of justice, conspiracy to commit insider trading, and conspiracy to commit money laundering.
The case was built in part on phone wiretaps that prosecutors said show the defendants' conspiracy.
Prosecutors said that in recent years, Kluger, Bauer and the co-conspirator would try to avoid detection by using pay phones and prepaid cellphones that they would later throw out.
They also said Bauer in late 2009 spent more than $7 million of proceeds from the scheme to buy two homes: a $6.65 million condominium on Manhattan's Upper East Side, and an $875,000 home in Boca Raton, Florida.
According to the complaint, Kluger worked from December 2005 until this March 11 as a senior associate in Wilson Sonsini's office in Washington, D.C., where his annual salary was about $290,000. Kluger worked at Cravath from 1994 to 1997, and at Skadden from 1998 to 2001, the complaint said.
U.S. Attorney Paul Fishman in New Jersey, and officials from the FBI and the U.S. Securities and Exchange Commission are expected to hold a press conference on the arrests later Wednesday.
The case is U.S. v. Bauer et al, U.S. District Court, District of New Jersey, No. 11-mag-03536.
(Reporting by Jonathan Stempel in New York; Additional reporting by Dena Aubin; editing by Dave Zimmerman)