Bloomberg Businessweek has all the details on an insider trading ring that eluded authorities for twenty years. The case has received a lot of press in recent months, as the three men involved were sentenced in June. One of them, Matthew Kluger, received a sentence longer than that of infamous insider trader Raj Rajaratnam.
The three men–Garrett Bauer, Matthew Kluger, and Kenneth Robinson–took advantage of Kluger’s privileged access to insider information at a series of high-ranking law firms in New York City and elsewhere to trade ahead of public information. Specifically, the ring profited from Kluger’s advance knowledge of major deals involving publicly traded companies, including Sun Microsystems. Overall, during the ring’s twenty year course, the three men traded in advance of 20 deals, making a total of $37 million.
But one of the men, Garrett Bauer, kept 90% of the scheme’s profits for himself, a fact that shocked Kluger when he was told of it after his arrest in April 2011.
Bauer, who recently gained headlines in a speaking tour encouraging business and law school students to choose honesty in their careers, was the stock trader who executed all of the deals. Kluger was the only one with access to the information. And Robinson, a mortgage broker and mutual friend of both men, was the go-between.
Once Kluger passed on the information, Bauer would buy shares of the company in question. After the deal went public, Bauer would sell the shares, distributing the profits to Robinson in $50 bills.
After an initial probe in 2007, the SEC was finally able to catch up with the operation because Robinson agreed to cooperate, including recording his friends making incriminating statements.
In his sentencing in June, Kluger was declared to be the brains of the operation by U.S. District Judge Katharine Hayden, although Kluger believed that he had been manipulated by the other two.
“I was not the mastermind,” Kluger said later in an interview, according to Bloomberg. “I’m not saying I was a good guy. I was definitely a very bad guy. These two guys were definitely manipulating me to keep me alive as a source.”
Kluger’s lawyer drew attention to the fact that Kluger barely profited from the scheme, compared to Bauer, but the judge countered that Kluger had a higher level of responsibility as a lawyer who had taken an oath of integrity.
Bauer was sentenced to nine years.
Want a daily digest of articles like this one, plus the latest compliance jobs at top-tier organizations? Join 50,000 other compliance, risk governance, and regulatory professionals and subscribe to our free afternoon newsletter. Where do you find news, style, and career all in one place? The Executive Gateway, our new lifestyle magazine.