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April 6, 2011 12:28 PM

Former Big Law Associate Charged in Insider Trading Scheme

Posted by Ross Todd

1d2a9e5 Update, 1:45 p.m. EDT - Comment from Wilson Sonsini in the eighth paragraph below.

Federal prosecutors have charged a former law firm associate and a trader with an alleged scheme of trading on insider information on mergers and acquisitions deals that netted the defendants $32 million over more than a decade.

Matthew Kluger (pictured right), a former associate at Cravath, Swaine & Moore, Skadden, Arps, Slate, Meagher & Flom, and Wilson Sonsini Goodrich & Rosati, has been charged in connection with an alleged scheme to trade on inside information. According to the complaint, filed in federal district court in Newark on Tuesday, Kluger and professional stock trader Garrett Bauer made trades based on information stolen from Wilson Sonsini. The two are charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit money laundering, and two counts each of obstruction of justice, as well as several counts of securities fraud. (The complaint also identifies a third, unnamed coconspirator involved in the alleged scheme.)

The alleged scheme dates back to the mid-1990s.  According to the complaint, between 1994 and 2011 Kluger passed along nonpublic information relating to anticipated corporate mergers and acquisitions that the law firms he was employed by worked on. Kluger was an associate in Cravath's New York office from 1994 to 1997. He was an associate at Skadden from 1998 to 2001, working in the firm's New York and Palo Alto offices. From late 2005 until March 2011, Kluger worked for Wilson Sonsini, the complaint says. (More details about Kluger's work history can be found on his LinkedIn page.)

Kluger originally traded on deals he was working on personally but later, the complaint says, in an effort to avoid detection, he passed along information about deals that he learned about by searching Wilson Sonsini's computer system. "Specifically, Kluger searched Wilson Sonsini's document management system to identify documents relating to other ongoing corporate merger or acquisition transactions," the complaint says. "Instead of actually opening documents, Kluger viewed the titles of documents and other information that was available in the document management system. Kluger did so in order to obtain inside information without creating a digital record that he had viewed the documents."

The deals Kluger and his alleged coconspirators traded on include Oracle Corp.'s acquisition of Wilson Sonsini client Sun Microsystems, Inc.; Hewlett-Packard Company's acquisition of client 3Com Corp.; and Intel Corp.'s purchase of client McAfee, Inc.. (Click here for the list of deals included in the complaint and here for a nifty SEC infographic on the case.)

The Am Law Daily reached out to Cravath, Skadden, and Wilson Sonsini for comment. Evan Chesler, the presiding partner of Cravath, says the firm was only contacted about the case shortly before the charges were announced by federal prosecutors in New Jersey. "Our position of course is that we condemn this kind of conduct, and we'll cooperate with the prosecutors," Chesler says. The firm, he says, is currently reviewing files from Kluger's time at the firm, but Chesler noted he left the firm almost 15 years ago. Chesler did not immediately know under what terms the former associate left the firm.

A spokesman for Skadden, in an e-mailed statement, said: "We have strict policies that protect our clients' confidential information, which we monitor closely. It would be deeply disappointing if these policies were not followed in this instance. We are cooperating fully with the government in this matter."

A spokeswoman for Wilson Sonsini, in an e-mailed statement, 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."

Additional reporting by Nate Raymond.

 

CLICK HERE for a related story from the New Jersey Law Journal, a sibling publication, for more on the case and the press conference held by federal prosecutors in New Jersey on Wednesday.

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