Wednesday, April 6, 2011
The SEC charged a corporate attorney and a Wall Street trader with insider trading in advance of at least 11 merger and acquisition announcements involving clients of the law firm where the attorney worked over the past 5 years. According to the SEC, Matthew H. Kluger, who formerly worked at Wilson Sonsini Goodrich & Rosati, and Garrett D. Bauer did not have a direct relationship with each other, but were linked only through a mutual friend who acted as a middleman to facilitate the illegal scheme. In a parallel criminal action, the U.S. Attorney’s Office for the District of New Jersey today announced the arrests of Kluger and Bauer.
According to the SEC’s complaint, Kluger accessed information on 11 mergers and acquisitions involving the law firm’s clients and then tipped the middleman. In at least nine instances, the middleman passed the information on to Bauer, who illegally traded for illicit profits totaling nearly $32 million. Kluger, Bauer and the middleman deliberately structured their communications and trading so that Kluger and the middleman could share in the insider trading proceeds while Bauer could illegally trade and profit without being connected to Kluger as a possible source of information. Bauer withdrew cash from his bank accounts and kicked back hundreds of thousands of dollars to the middleman, who in turn delivered at least $500,000 to Kluger for his role in the scheme.
The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.