Accused trader admits guilt in insider case

Reuters News
Posted: Dec 08, 2011 10:08 PM
Accused trader admits guilt in insider case

By Terry Baynes

(Reuters) - A New York stock trader pleaded guilty to participating in an insider trading scheme that relied on inside information from a corporate lawyer at four prominent law firms and spanned over 15 years, the U.S. Attorney for the District of New Jersey announced in a press release on Thursday.

Garrett Bauer, 44, admitted in Newark federal court to trading on corporate merger tips from lawyer Matthew Kluger, who is accused of stealing the details from law firms where he worked, including Wilson Sonsini Goodrich & Rosati PC, known for representing Silicon Valley companies.

Bauer and Kluger were arrested in April for their roles in the long-running scheme, which prosecutors say netted more than $37 million in profits. Prosecutors said Kluger would steal and give nonpublic information about clients' pending mergers to middleman Kenneth Robinson.

Robinson pleaded guilty in April to passing the information along to Bauer, who allegedly purchased shares only to sell them and reap gains when the deals went public. Prosecutors accused Bauer of making most of the illegal profit, while Robinson made about $875,000 and Kluger made $500,000.

"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," U.S. Attorney Paul Fishman said in a statement.

Bauer admitted to trading ahead of more than 30 different corporate transactions, based on tips provided by Kluger, according the U.S. Attorney's Office. He pleaded guilty to four counts, including securities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and obstruction of justice.

Under the plea deal, Bauer will forfeit over $23 million in assets, including a New York condominium and Florida house that he purchased with the proceeds, the U.S. Attorney said.

Prosecutors said Kluger began leaking merger tips as early as 1994, including when he worked as an associate at the law firms Cravath, Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom. Robinson said he also obtained tips from Kluger when he worked at a fourth law firm, Fried, Frank, Harris, Shriver & Jacobson.

Bauer's lawyer Michael Bachner said his client was remorseful for his conduct. Since his arrest, Bauer has lectured to hundreds of business students and professionals about his conduct and warned them to avoid breaking the law, he said.

"We hope that the sentence he receives reflects not only the seriousness of his crime but the positive efforts he has made since that time to deter others from illegal conduct," Bachner said. Bauer's sentencing is scheduled for March 13, 2012.

Kluger's lawyer Alan Zegas was not immediately available for comment.

The case is USA v. Bauer et al, U.S. District Court, District of New Jersey, No. 2:11-mj-3536.

(Reporting by Terry Baynes, editing by Bernard Orr)