Wednesday, April 6, 2011

DC. lawyer charged in multimillion-dollar insider trading scheme

DC. lawyer charged in multimillion-dollar insider trading scheme
By David S. Hilzenrath
Washington Post
April 6, 2011

By mid-March, as the government tells it, Matthew H. Kluger knew the FBI was closing in.

As a lawyer for three of the nation’s premier corporate law firms, most recently in the Washington office of Wilson Sonsini, he had allegedly stolen secrets that yielded tens of millions of dollars of insider trading profits. Now he was trying to eliminate the evidence.

Out went his computer, and his iPhone.

“Those are gone. I mean history,” he allegedly told a friend and co-conspirator.

But he was still worried.

“If they start looking at me and look at my bank records and all that other stuff . . . it could get ugly,” he said.

Sure enough. On Wednesday, the government dispatched any notion that law firms are always bastions of probity and discretion, charging that since the mid-1990s Kluger had tapped into his firms’ computer networks to extract and trade on confidential information about deals involving such blue-chip companies as Oracle, Intel and Hewlett-Packard.

Along with the financial crimes, he and a New York trader named Garrett D. Bauer are accused of engaging in a panicked cover-up that they discussed at length in telephone conversations with a third, unnamed conspirator, the alleged middleman.

In a March 17 phone call, according to a transcript of a recording, Kluger implored the middleman to get rid of a mobile phone that linked the two of them.

“I really would like to see this phone go bye-bye ASAP,” he said. “Do you want this to be our undoing?”

Worried that his fingerprints were on $175,000 in cash, Bauer allegedly urged the middleman to burn the money.

The middleman suggested that they launder the money instead — in a washing machine.

Kluger, 50, of Oakton, Va., and Bauer, 43, a New Yorker, were arrested Wednesday.

Kluger appeared in federal court in Alexandria and was being detained until a bail hearing Friday, said Rebekah Carmichael, a Justice Department spokeswoman. Bauer was being held in Newark.

An attorney for Bauer said it was too early to say how Bauer would respond to the charges. William J. Davis of Scheichet & Davis described him as “quite a pleasant fellow, very nice, quite gentle,” adding that Bauer “is in a bit of a difficult situation right now.”

Government officials were unable to identify an attorney for Kluger, and no one returned a message left at his home.

The two face criminal prosecution by the U.S. attorney for New Jersey and civil charges from the Securities and Exchange Commission.

A spokeswoman for Wilson Sonsini Goodrich & Rosati, the law firm where Kluger was until recently employed as a $290,000-a-year senior associate, said the firm was shocked to learn of the charges. The firm is giving its full support to the investigation, spokeswoman Courtney Dorman said in a statement.

The charges were the latest in a federal crackdown on insider trading 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 accused of trading on advance knowledge of drug approvals.

The new case alleges that secrets were pilfered from the high priesthood of corporate law firms, including the New York-based firms Cravath Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom...

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