A former attorney pleaded guilty Thursday to securities fraud, admitting a role in a $53 million insider trading case already brought against 20 others, including one of America's richest men.
Brien Santarlas, 33, entered the plea in U.S. District Court in Manhattan. His lawyer, Robert Stahl, said he is cooperating with authorities. Santarlas is the third lawyer charged in a case a prosecutors said in October is the largest hedge fund insider trading scheme ever prosecuted.
The Hoboken, N.J., resident was the sixth of 21 Wall Street professionals charged in the case to plead guilty to charges and cooperate with the government.
Among those charged is billionnaire Galleon Group founder and hedge fund operator Raj Rajaratnam. In court papers, Rajaratnam's lawyers have said Rajaratnam did not cheat to earn profits in securities and the government misled a judge to obtain wiretaps.
Santarlas said he gleaned inside information about pending mergers and acquisitions from computers at Ropes & Gray LLP, an international law firm where he worked. He said he also eavesdropped on secret conversations and asked unwitting colleagues questions about deals.
"I knew what I was doing was wrong," Santarlas said.
Although Santarlas' guilty plea to a conspiracy charge and securities fraud carries a potential sentence of up to 25 years in prison, he can obtain leniency by cooperating before a sentencing scheduled for June 1.
During his plea, Santarlas said he teamed up with a fellow attorney at his firm from June 2007 to May 2008 to collect inside information in return for cash. He said he fed the tips to a third lawyer outside the firm who forwarded the information to hedge fund managers and others.
In a statement, Ropes & Gray said the actions of the "two former associates represent an extreme breach of their duty of trust to our clients and the firm, as well as gross violations of our policies and civil and criminal law." The firm fired Santarlas in September 2008.
The firm said it is cooperating with authorities in their probe.
The Securities and Exchange Commission announced civil charges against Santarlas and said the secrets he disclosed regarding two deals made public in 2007 _ Bain Capital Partners LLC's eventually unsuccessful bid for 3Com Corp. and TPG Capital's acquisition of Axcan Pharma Inc. _ led to $20 million in illegal profits.
According to court papers, Santarlas received $7,500 in cash for feeding tips about the 3Com deal and $25,000 in cash for secrets about the Axcan acquisition. As part of his plea, Santarlas agreed to forfeit $42,500.
"Gatekeepers serve a critical role advising participants in the capital markets," said Robert Khuzami, director of the SEC's Division of Enforcement. "When lawyers who have access to nonpublic information betray client confidences, it both tarnishes the profession and undermines investor faith in the marketplace."