Virginia Lawyer for Preeminent Firms Pleads Guilty in $37 Million Insider Trading Scheme Using Information Stolen from Employers
|U.S. Attorney’s Office December 14, 2011|
NEWARK, NJ—A corporate lawyer who previously worked at four prominent international law firms admitted today to participating in an insider trading scheme that lasted for 17 years, relied on information he stole from his law firms and their clients, and netted more than $37 million in illicit profits, U.S. Attorney for the District of New Jersey Paul J. Fishman announced.
Matthew Kluger, 50, of Oakton, Va., 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. Kluger entered his guilty plea before U.S. District Judge Katharine S. Hayden in Newark federal court.
“Not only did Matthew Kluger defraud the investing public, he betrayed the colleagues and clients who depended on his confidentiality in some of the biggest deals of the last decade,” said U.S. Attorney Fishman. “In order to be confident in our markets, investors must have comfort that those with inside information won’t abuse positions of trust for personal gain.”
“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 Matthew Kluger, 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:
Kluger and two co-conspirators—Garrett D. Bauer, 44, of New York, and Kenneth Robinson, 45, of Long Beach, N.Y.,—engaged in an insider trading scheme that began in 1994. Kluger admitted that he passed inside information to Bauer and Robinson that the men used to trade ahead of more than 30 different corporate transactions.
During the scheme, 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 as a senior associate in the mergers & acquisitions department of the firm’s Washington, D.C., 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.
Kluger admitted that once he 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 per deal—that Bauer withdrew in multiple transactions from ATM machines.
The three conspirators took greater efforts to prevent detection of their insider trading scheme after Kluger joined Wilson Sonsini. Among other techniques, they used pay phones and prepaid cellular phones that they referred to as “throwaway phones” to discuss the scheme.
Kluger also admitted that, after Robinson told him that the FBI and (Internal Revenue Service) had searched Robinson’s house and had asked questions about the illicit scheme, Kluger destroyed multiple pieces of evidence, including an iPhone and a computer. Kluger also instructed Robinson to destroy a prepaid phone.
As part of his guilty plea, Kluger agreed to forfeit $415,000, which is the approximate amount that he obtained from recent transactions in the scheme.
The maximum potential penalties Kluger 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 Kluger’s sentencing for April 9, 2012.
Bauer and Robinson have both pleaded guilty in connection with the scheme. Bauer is scheduled to be sentenced on March 13, 2011. Robinson is scheduled to be sentenced on March 6, 2012.
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.