By Andrew Longstreth and Jonathan Stempel
NEWARK, N.J./NEW YORK (Reuters) - A mortgage broker, whose secret recordings of two friends who prosecutors say were trying to cover up one of the biggest U.S. insider trading cases on record, pleaded guilty to involvement in the 17-year scheme.
Kenneth Robinson admitted to being a middleman who supplied information to accused trader Garrett D. Bauer about pending mergers. He said he got the tips from corporate lawyer Matthew H. Kluger, who is accused of stealing the details from law firms where he worked.
Kluger and Bauer were arrested last week for their roles in the estimated $32.2 million scheme. Bauer made most of the illegal profit, while Robinson made about $875,000 and Kluger made $500,000, investigators said. Kluger and Bauer have not yet entered pleas.
Robinson, 45, pleaded guilty to two counts of securities fraud and one count of conspiracy before U.S. District Judge Katharine Hayden at a hearing Monday in federal court in Newark, New Jersey.
He spoke mostly in one-word answers in court. His lawyer, Francis Murray, said Robinson turned himself in Monday morning.
Robinson is the unnamed "co-conspirator" cited in the criminal complaint against Bauer and Kluger.
Prosecutors said the scheme dated to 1994. It was uncovered after Robinson's home in Long Beach, New York, was raided last month, and after Robinson let investigators secretly record his conversations with Bauer and Kluger.
In those calls, the men discuss destroying evidence, including whether money could be cleaned in a washing machine to rid it of fingerprints, according to court papers.
Robinson could face 70 to 87 months in prison under his plea agreement when he is sentenced on July 26. He was released on $2 million bond and is surrendering his passport.
Bauer, a resident of New York, was expected to appear in the Newark court Monday afternoon. Kluger, who lives in Oakton, Virginia, is expected to appear on a date to be scheduled.
Prosecutors have accused Kluger and Bauer of reaping illegal profits from trades based on tips about 11 pending mergers and investments that Kluger learned about while employed at Wilson Sonsini Goodrich & Rosati PC, a firm known for representing Silicon Valley companies.
Robinson admitted that he personally made trades in 2009 and 2010 on two transactions -- Hewlett-Packard Co's takeover of 3Com Corp and Intel Corp's purchase of McAfee Inc -- for an estimated $693,000 profit.
He also admitted to tipping Bauer to British chipmaker CSR Plc's planned takeover of Zoran Corp, which was announced in February, and accepted $182,000 from illegal trades in the U.S. imaging company.
Kluger left Wilson Sonsini last month. He also leaked information he learned when he worked previously at law firms Cravath Swaine & Moore LLP and Skadden, Arps, Slate, Meagher & Flom LLP, although these leaks are not now part of the criminal case, prosecutors said.
Robinson said he also got tips from Kluger when the lawyer worked at a fourth law firm, Fried, Frank, Shriver, Harris & Jacobson LLP, which was not named in court papers.
Prosecutors have indicated they may expand their case against Bauer and Kluger, with the help from Robinson.
"As you know in many criminal cases, the testimony of one person in a scheme is instrumental in our investigative and prosecution strategy," New Jersey U.S. Attorney Paul Fishman said after Robinson's hearing.
The case also comes as prosecutors pursue a large number of high-profile insider trading cases, including against Raj Rajaratnam, the Galleon Group hedge fund founder. Rajaratnam, who has pleaded not guilty, is on trial in New York on charges of securities fraud and conspiracy.
The case is U.S. v. Robinson, U.S. District Court, District of New Jersey, No. 11-00223.
(Reporting by Andrew Longstreth in Newark, New Jersey, and Jonathan Stempel in New York; Editing by Tim Dobbyn, Steve Orlofsky and Gerald E. McCormick)