Long Island Investment Advisor And Law Firm Attorney Indicted In Insider Trading Scheme
Defendants Profited by Trading Prior to Pending Merger Between Pfizer and King Pharmaceuticals
A two-count indictment was unsealed this morning in federal court in Central Islip, New York, charging Tibor Klein, the founder and president of investment advisory firm Klein Financial Services (Klein Financial); and Robert Schulman, a former partner in a Richmond-based global law firm (the law firm), with securities fraud and securities fraud conspiracy. Schulman tipped Klein about the pending merger between Pfizer, Inc. (Pfizer) and King Pharmaceuticals, Inc. (King) that Schulman had learned through his representation of King, and Klein used that material non-public information to engage in securities transactions ahead of the merger announcement. Klein will be arraigned later today before United States Magistrate Judge Gary Brown at the U.S. Courthouse, 100 Federal Plaza, Central Islip, New York. Schulman’s initial appearance for removal proceedings to the Eastern District of New York is scheduled for this afternoon at the Albert V. Bryan U.S. Courthouse, 401 Courthouse Square, Alexandria, Virginia.
The charges were announced by Robert L. Capers, United States Attorney for the Eastern District of New York, and Philip R. Bartlett, Inspector-in-Charge, United States Postal Inspection Service (USPIS).
“As alleged, Robert Schulman and Tibor Klein were licensed professionals who used their positions of trust to fraudulently enrich themselves. Schulman, an attorney, violated the trust and confidence of his client for personal gain by passing along his client’s sensitive and economically valuable information to Klein, his investment advisor, and Klein exacerbated this crime by using the fraudulently-obtained information to trade in a number of his clients’ accounts,” stated United States Attorney Capers. “The charges and arrests announced today reflect our steadfast commitment to hold accountable licensed professionals who use their positions to defraud the financial markets.” Mr. Capers thanked the Securities and Exchange Commission (SEC) for their cooperation and assistance during the investigation.
“These individuals allegedly used proprietary information available solely through their trusted positions for an unfair advantage in the financial market to satisfy their appetite for money. The arrest of Robert Schulman and Tibor Klein exemplifies the commitment of the United States Postal Inspection Service and its law enforcement partners to maintain a fair trading environment for all investors,” stated Inspector-in-Charge Bartlett.
As detailed in the indictment, in May 2009, Schulman began representing King, a pharmaceutical company then based in Bristol, Tennessee, in a patent litigation in the Western District of Virginia on behalf of the law firm. Between July 12, 2010 and August 4, 2010, through his representation of King, Schulman learned of a pending merger between King and Pfizer. On the weekend of August 13, 2010, Klein traveled to Schulman’s residence in McLean, Virginia, to discuss Schulman’s investment portfolio. During that trip, Schulman revealed to Klein that there was a pending merger between King and Pfizer. The following Monday, August 16, 2010, Klein began purchasing King stock for himself, Schulman, and other clients of Klein Financial. Over the next month, Klein purchased more than $585,000 of King stock for himself and his clients.
In addition, on August 16, 2010, Klein informed a registered broker in Florida that he had obtained inside information regarding the King-Pfizer merger and directed the broker to purchase King stock and call options. Between August 16, 2010 and August 23, 2010, the registered broker purchased both King stock and call options. On October 12, 2010, Pfizer’s acquisition of King was publicly announced. The same day, Klein sold all of the King shares he had acquired and generated a profit of more than $300,000 for himself, Schulman, and Klein Financial clients. Also, on October 12, 2010, at Klein’s direction, the broker exercised all of the unexpired call options and sold all of the King stock the broker had purchased, generating a profit of more than $100,000, which the broker split with Klein.
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If convicted, Klein and Schulman each face a maximum sentence of twenty years’ imprisonment.
The government’s case is being prosecuted by the Office’s Business and Securities Fraud Section. Assistant United States Attorney David Pitluck is in charge of the prosecution.
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The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
Residence: Melville, New York
Residence: McLean, Virginia
E.D.N.Y. Docket No. 16-CR-442