The Talent

December 14, 2011 6:54 PM

Ex-Am Law Associate Kluger Pleads Guilty in $37 Million Insider Trading Scheme

Posted by Tom Huddleston Jr.

Matthew Kluger, a former Am Law 100 associate who was charged in April with participating in a massive insider trading scheme, pleaded guilty Wednesday in Newark federal court to all four counts against him, according to a press release issued by the U.S. attorney's office for the District of New Jersey.

The plea comes less than a week after former stock trader Garrett Bauer pleaded guilty in connection with the the same scheme, which prosecutors say netted Kluger, Bauer, and a third man, mortgage broker Kenneth Robinson, a total of $37 million.

Like Bauer, Kluger entered a guilty plea in which he admitted to committing conspiracy to commit securities fraud, securities fraud, conspiracy to commit money laundering, and obstruction of justice.

Robinson, who served as a government informant toward the end of the scheme, pleaded guilty in April to one count of conspiracy to commit securities fraud and two counts of securities fraud, according to The Am Law Daily's prior reporting.

At the time of his plea, Robinson testified that the scheme began in 1994, when Kluger was a summer associate at Cravath, Swaine & Moore, and continued through his subsequent stints at Skadden, Arps, Slate, Meagher & Flom; Fried, Frank, Harris, Shriver & Jacobson; and Wilson Sonsini Goodrich & Rosati.

(As we have noted previously, Kluger was fired by Fried Frank in 2002 after only a year with the firm. He subsequently sued the firm, alleging that he was discriminated against during his time there because he is gay. That case was settled in 2004, according to The Wall Street Journal.)

At each stop, Kluger stole confidential information related to corporate M&A work being handled by the firm in question, then provided details of pending corporate mergers to Robinson. Robinson would, in turn, pass the information to Bauer, Robinson testified. Bauer would then purchase shares for all three men based on the inside information.

The obstruction of justice charge stems from the fact that Kluger destroyed a computer and an iPhone upon learning that authorities had searched Robinson's home, according to court documents. Kluger also instructed Robinson to destroy a prepaid cellphone that he had used to communicate with Kluger and Bauer. As The Am Law Daily reported in its story about Bauer's plea, he was also charged with obstruction of justice for breaking his own prepaid cellphone into two pieces and discarding them in trash cans at a New York City McDonald's.

Prosecutors say that the men traded ahead of more than 30 separate transactions during the scheme, which ended in March when Kluger left Wilson Sonsini. At the time, he was a senior M&A associate in the firm's Washington, D.C.

"Not only did Matthew Kluger defraud the investing public, he betrayed the colleagues and clients who depended on his confidentiality in some of the biggest deals of the last decade," New Jersey U.S. attorney Paul Fishman said in a statement. "In order to be confident in our markets, investors must have comfort that those with inside information won't abuse positions of trust for personal gain."

Kluger has been represented in the case by Alan Zegas of Chatham, New Jersey, who did not immediately respond to a request for comment.

As The Am Law Daily has reported previously, the deals on which Kluger and his coconspirators traded included 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 government's original complaint.)

As we reported in April, Robinson recorded conversations with Kluger that were included in the criminal complaint the government filed against the former lawyer. In April, Am Law Daily sibling publication The Litigation Daily reviewed transcripts of those conversations, which included talk of destroying evidence, as well as an instance of Kluger advising Robinson not to listen if his lawyer told him to flip, because he wouldn't get a good deal.

"[What] he's telling you is that you should flip, right? That's what, that's what I mean all these guys do—that's all they ever do," Kluger says, according to the transcript. "Unless you get one that used to work for the mob or something. That's all these, that's all these former prosecutors know. It's whoever—he's going to tell you whoever makes the first deal makes the best deal and blah, blah, blah, blah, blah."

In the end, Robinson did not take Kluger's advice. Robinson is scheduled for sentencing in March, as is Bauer.

Kluger is scheduled to be sentenced on April 9, 2012. Acccording to the U.S. attorney's office's, the counts to which he pled guilty carry the following maximum sentences: conspiracy to commit securities, five years in prison and a $250,000 fine (or twice the aggregate loss to victims, or gain to defendants); securities fraud, 20 years and a $5 million fine; conspiracy to commit money laundering, 20 years and a $500,000 fine (or twice the value of the property involved); obstruction of justice, 20 years and a $500,000 fine.

As part of his guilty plea, Kluger also agreed to forfeit $415,000 gained from recent transactions in the scheme. Bauer agreed to forfeit cash and assets in excess of $23 million, with prosecutors claiming last week that he had taken "the lion's share of the $37 million in profits."

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