Trader pleads guilty in long-running insider trading scheme using information stolen from preeminent law firms
FOR IMMEDIATE RELEASE |
December 8, 2011 |
Illicit Trades Ahead of More than 30 Different Corporate Transactions
Over More Than 15 Years Netted More than $37 Million in Profits
NEWARK, N.J. – A professional stock trader admitted today to participating in an insider trading scheme that relied on information from a corporate lawyer at four prominent, international law firms, spanned more than 15 years and netted more than $37 million in illicit profits, New Jersey U.S. Attorney Paul J. Fishman announced.
Garrett D. Bauer, 44, of New York, pleaded guilty to all four counts charged in the Information against him: conspiracy to commit securities fraud, securities fraud, conspiracy to commit money laundering and obstruction of justice. Bauer entered his guilty plea before U.S. District Judge Katharine S. Hayden in Newark federal court.
As part of his guilty plea, Bauer also agreed to forfeit the contents of numerous trading and bank accounts he used to facilitate the scheme, as well as homes that he purchased with the proceeds. In total, the value of the property Bauer is required to forfeit is in excess of $23 million.
“Today, Garrett Bauer admitted that he used confidential information, stolen from major law firms, to make tens of millions in one of the largest, longest-running insider trading schemes ever prosecuted,” said U.S. Attorney Fishman. “After taking the lion’s share of the $37 million in profits, Bauer now faces punishment for conduct that undermines the fairness of our financial markets and the public’s trust in the safety of its investments. We have no tolerance for corporate insiders and their cronies who benefit themselves by using their positions and access to cheat the investing public.”
“In this time of economic uncertainty, securities fraud remains a top investigative priority for the FBI,” said Michael B. Ward, Special Agent In Charge of the Newark Division of the FBI. “Millions of investors have entrusted their life savings to the integrity of the financial markets and the belief of a level playing field. Insider trading, such as the conduct attributable to Garrett Bauer, corrupts the process and tilts the playing field in favor of those privileged few with access to information not available to the public, and at the expense of unsuspecting and unknowing investors.”
According to documents filed in this case and statements made in court:
Bauer and two coconspirators – Matthew Kluger, 50, of Oakton, Va., and Kenneth Robinson, 45, of Long Beach, N.Y. – engaged in an insider trading scheme that began in 1994 and relied on Kluger, a lawyer, to steal information from his employers and their clients.
Bauer admitted that as part of the scheme, he traded ahead of more than 30 different corporate transactions based on inside information provided by Kluger.
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 in New York and Palo Alto, Calif., as an associate in their corporate department. From 2001 to 2002, Kluger worked as a corporate associate at Fried, Frank, Harris, Shriver & Jacobson LLP in New York. From Dec. 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 firms, Kluger regularly stole and disclosed to Robinson material, nonpublic information regarding anticipated corporate mergers and acquisitions on which his firms were working. Early in the scheme, Kluger disclosed information relating to deals on which he personally worked. As the scheme developed, and in an effort to avoid law enforcement detection, Kluger took information which he found primarily by viewing documents on his firms’ computer systems.
Once Kluger provided the inside information to Robinson, Robinson passed it to Bauer. Bauer then purchased shares for himself, Kluger, and Robinson in Bauer’s trading accounts, then sold them 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 ATM machines.
Bauer spent over $7 million of his share of the proceeds to purchase two properties – approximately $6.65 million for an Upper East Side condominium in New York and approximately $875,000 for a home in Boca Raton, Fla.
Bauer admitted that after Kluger joined Wilson Sonsini, the three conspirators took greater efforts to prevent detection of their insider trading scheme. Among other techniques, they used pay phones and prepaid cellular phones that they referred to as “throwaway phones” to discuss the scheme.
Bauer also admitted that after Robinson told him that the FBI and IRS had searched Robinson’s house and had asked questions about the illicit scheme, Bauer destroyed a prepaid phone, discarding the pieces in two separate trash cans at a New York McDonald’s. Bauer also admitted to directing Robinson to burn approximately $175,000 in cash that Bauer had paid him out of concern his fingerprints would be found on the money.
The maximum potential penalties Bauer faces per count are as follows:
COUNT |
CHARGE |
MAXIMUM POTENTIAL PENALTY |
1 |
Conspiracy to commit securities fraud |
Five years in prison; $250,000 fine, or twice the aggregate loss to victims or gain to the defendants |
2 |
Securities fraud |
20 years in prison; $5 million fine |
3 |
Conspiracy to commit money laundering |
20 years in prison; $500,000 fine, or twice the value of the property involved in the transaction |
4 |
Obstruction of justice |
20 years in prison; $500,000 fine |
Judge Hayden scheduled Bauer’s sentencing for March 13, 2012.
Kluger was charged by Complaint on April 6, 2011. His case is pending. Robinson pleaded guilty on April 11, 2011, to an Information charging him with one count of conspiracy to commit securities fraud and two counts of securities fraud and is awaiting sentencing.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Ward in Newark, for the investigation. He also thanked special agents of the IRS, under the direction of Special Agent in Charge Victor W. Lessoff, and the U.S. Securities and Exchange Commission’s Market Abuse Unit and Philadelphia Regional Office, under the direction of Daniel M. Hawke.
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: Michael Bachner Esq., New York
