News and Press Releases

Middleman sentenced to prison for role in $37 million insider trading scheme



FOR IMMEDIATE RELEASE
June 5, 2012


 

NEWARK, N.J. – Kenneth Robinson – a middleman who passed information stolen from preeminent law firms to facilitate a scheme that netted at least $37 million in illicit profits – was sentenced today to 27 months in prison for his role in a long-term insider trading conspiracy with stock trader Garrett Bauer and attorney Matthew Kluger, U.S. Attorney Paul J. Fishman announced.

Kenneth T. Robinson, 46, of Long Beach, N.Y., previously pleaded guilty before U.S. District Judge Katharine S. Hayden to an Information charging him with one count of conspiracy to commit securities fraud and two counts of securities fraud.

According to documents filed in this case and statements made in Newark federal court:

Robinson, a mortgage broker, engaged in an insider trading scheme with Bauer and Kluger that began in 1994. During the last five years of the scheme, the conspirators invested more than $109 million and made more than approximately $37 million in illicit profits.

Over time, Kluger worked at four of the nation’s premier mergers and acquisitions law firms. From 1994 to 1997, he worked first as a summer associate and later as a corporate associate at Cravath Swaine & Moore in New York. From 1998 to 2001, he worked at Skadden, Arps, Slate, Meagher & Flom as an associate in its corporate department. From 2001 to 2002, he worked at Fried, Frank, Harris, Shriver & Jacobson LLP in New York. From December 5, 2005 to March 11, 2011, Kluger worked at Wilson Sonsini Goodrich & Rosati (“Wilson Sonsini”), as a senior associate in the Mergers & Acquisitions department of the firm’s Washington office.

While at the law firms, Kluger regularly stole material, nonpublic information regarding anticipated corporate mergers and acquisitions on which his firms were working, and disclosed that information to Robinson. Robinson admitted that once Kluger provided him the inside information, he usually passed it to Bauer, a professional trader. Bauer then purchased shares for himself, Kluger, and Robinson in Bauer’s trading accounts. Bauer quickly sold the shares once the relevant deal was publicly announced and the stock price rose. Bauer gave Robinson and Kluger their shares of the illicit profits in cash – often tens or hundreds of thousands of dollars – that Bauer withdrew in multiple transactions from ATMs. Between 1994 and 2011, the conspirators traded ahead of at least 30 different corporate transactions.

Robinson admitted that he personally made the trades on at least two transactions: the acquisition of 3Com Corp. by Hewlett-Packard, announced November 11, 2009; and the acquisition of McAfee Inc. by Intel Corp., announced August 19, 2010.

Robinson also admitted that after Kluger joined Wilson Sonsini, the three conspirators generally only spoke to each other about proposed transactions on payphones or prepaid cellular phones that they referred to as “throwaway phones” and purchased with cash. They often got a new phone for each of their insider trading deals.

In addition to the prison term, Judge Hayden sentenced Robinson to three years of supervised release. Kluger and Bauer were sentenced yesterday, June 4, 2012, to 12 and 9 years in prison, respectively.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward in Newark, and special agents of the IRS, under the direction of Acting Special Agent in Charge JoAnn S. Zuniga, for the investigation leading to today’s sentencings. He also thanked the U.S. Securities and Exchange Commission’s Market Abuse Unit and Philadelphia Regional Office, under the direction of Daniel M. Hawke, for their role in the investigation.

The government is represented by Assistant U.S. Attorneys Matthew E. Beck of the U.S. Attorney’s Office Economic Crimes Unit; Judith H. Germano, Chief of the Economic Crimes Unit; and Lakshmi Srinivasan Herman of the Office’s Asset Forfeiture Unit in Newark.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

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Defense counsel: Francis J, Murray, Esq., Rockville Center, N.Y.

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