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April 19, 2011 > 2 charged with insider trading involving law firms

2 charged with insider trading involving law firms

By David Porter, Associated Press

NEWARK, N.J. (AP), Apr 06 - A former lawyer and stock trader were arrested Wednesday and charged with running an insider trading scheme straight out of the movie "Wall Street" that brought in so much money the suspects spoke at one point about burning $175,000 in cash to avoid detection.

Garrett Bauer, of New York, and Matthew Kluger of Oakton, Va., face multiple counts of insider trading and obstruction in addition to single counts of conspiracy and money laundering. Authorities said the scheme netted more than $30 million in profit over the last five years.

"Their 'greed is good' mentality eventually led to their criminal acts being exposed," said Michael Ward, head of the FBI office in Newark, using the famous line spoken by Michael Douglas in Oliver Stone's 1993 movie.

Bauer was scheduled to appear in U.S. District Court in Newark on Wednesday afternoon, while Kluger was to appear in federal court in Alexandria, Va.

According to the criminal complaint, Kluger illegally took information on upcoming company mergers from his Washington, D.C., law firm, Wilson Sonsini Goodrich & Rosati, and passed it on to a middleman who has not been identified.

The middleman would pass the information to Bauer, who would buy stock ahead of the mergers. Among the mergers were Adobe Systems' acquisition of Omniture, Hewlett-Packard's acquisition of 3Com and Oracle's purchase of Sun Microsystems.

The Oracle-Sun merger made the scheme more than $11 million in illicit profit, the complaint alleges.

In a statement emailed Wednesday, the law firm said: "We were shocked to learn of the conduct the government has alleged a former employee committed against us and two other prominent law firms. We have provided our full support to the federal investigation and will continue to do so. In light of the pending actions by the U.S. Attorney's Office and the SEC, we are not in a position to comment further."

Authorities allege the conspiracy dates back to the mid-1990s when Kluger worked for prominent New York law firms Cravath Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom, though the substantive counts released Wednesday relate to activity when he worked for Wilson Sonsini. Spokespeople for Cravath and Skadden did not immediately return messages seeking comment Wednesday.

Bauer and Kluger were able to escape detection by using prepaid, disposable cellphones and by not having direct contact before the stock purchases, according to Daniel Hawke, regional director of the Securities and Exchange Commission's market abuse unit.

During one phone conversation recorded by the unnamed coconspirator, Bauer allegedly tells the person to destroy $175,000 in cash because his fingerprints are on it.

"You know what, if you feel better burn the money and I'll give it back to you," Bauer says.

"Burn it?" the person asks.

"I would burn it in a fire," Bauer responds.

It is not known whether the money actually was destroyed.

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