Lawyer, trader accused of making millions with insider trading scheme
WASHINGTON — A lawyer who has worked for three of the nation’s leading corporate law firms was arrested yesterday and charged with participating in an insider trading scheme that allegedly netted tens of millions of dollars, based on confidential information about pending mergers and acquisitions.
Matthew H. Kluger of Oakton, Va., 50, who until February worked at the Washington office of Wilson Sonsini Goodrich & Rosati, is accused of engaging in a conspiracy that began in the 1990s when, as a summer associate at a New York law firm, he discovered that he could extract valuable secrets from the firm’s computer network.
The charges were the latest in a series of insider trading cases in a federal crackdown that has nabbed hedge fund traders, management consultants, a former board member at Wall Street powerhouse Goldman Sachs and, recently, a Food and Drug Administration chemist.
This latest case alleges that secrets were pilfered from the high priesthood of corporate law firms, including Cravath Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom.
Through an unidentified middleman, Kluger passed his tips to a trader in New York, Garrett Bauer, 43, who placed trades that netted about $32 million since 2006 alone, the government alleged.
The two face criminal prosecution by the Justice Department and civil charges by the Securities and Exchange Commission.
To hide their tracks, they allegedly used disposable cellphones and met in Atlantic City, where gambling would provide a cover story for cash transactions.
But this year, fearing that the government was closing in, they took panicked steps to eliminate evidence, the government said.
Bauer destroyed a prepaid phone, tossing the pieces in trash cans at a New York McDonald’s, the government said.
He also urged the middleman to burn about $175,000 in cash because he was afraid his fingerprints would be found on the money, the government said.
Kluger trashed his home computer, iPhone, and a prepaid phone, the government said.
In a March phone call to the middleman, according to the government, Kluger said, “If they start looking at me and look at my bank records and all that other stuff, it could be, it could get ugly.’’
In a call the next day, the government said, Bauer was recorded saying: “I can’t sleep. I can’t sleep. I am waiting for the FBI to ride into my apartment. And I am on edge all night thinking that they’re coming in.’’
During the same call, the government said, he talked about how he would explain his large cash withdrawals, saying: “I used that as spending money. I don’t know, I will say I bought prostitutes if it comes down to it.’’
The illegal trading allegedly focused on mergers involving such well-known companies as Sun Microsystems, Oracle, Adobe Systems, Hewlett-Packard,McAfee, and Intel.
An attorney for Bauer did not return a call for comment. The government did not identify an attorney for Kluger.
© Copyright 2011 Globe Newspaper Company.
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