The Talent

December 8, 2011 6:37 PM

Trader Tied to Ex-Big Law Associate Kluger's Alleged Insider Trading Pleads Guilty

Posted by Tom Huddleston Jr.

The stock trader involved in the insider trading case against former law firm associate Matthew Kluger pleaded guilty Thursday to all four counts against him in Newark federal court, according to a press release issued by the U.S. attorney's office for the District of New Jersey.

Garrett Bauer, 44, was arrested in April in connection with his role in an alleged insider trading scheme that prosecutors say netted $37 million in illegal gains that he split with Kluger and mortgage broker Kenneth Robinson. In entering his guilty pleas, Bauer admitted to committing conspiracy to commit securities fraud, securities fraud, conspiracy to commit money laundering, and obstruction of justice.

Robinson, a former conspirator turned informant, pleaded guilty in April to one count of conspiracy to commit securities fraud and two counts of securities fraud, according to our prior reporting. He previously told the court that the insider trading scheme—which ended in March—began in 1994 when Kluger was a summer associate at Cravath Swaine & Moore.

Robinson said that Kluger stole material regarding corporate M&A work at the Am Law firms where he worked as an associate, including Cravath; Skadden, Arps, Slate, Meagher & Flom; Fried, Frank, Harris, Shriver & Jacobson; and Wilson Sonsini Goodrich & Rosati. Robinson testified that Kluger would provide him inside information on pending corporate mergers, which he would then pass on to Bauer, who in turn would purchase shares for all three men.

Prosecutors say that the men traded ahead of more than 30 different transactions as part of the scheme. According to the U.S. attorney's office in Newark, Bauer's obstruction of justice charge is related to his destruction of a prepaid cellphone he used to communicate with Kluger and Robinson after being notified that authorities had searched Robinson's home. Prosecutors say Bauer broke the phone into two pieces and discarded them in two separate trash cans in a New York City McDonald's.

"After taking the lion's share of the $37 million in profits, Bauer now faces punishment for conduct that undermines the fairness of our financial markets and the public's trust in the safety of its investments," U.S. attorney for New Jersey Paul Fishman said in a statement.

As part of his guilty plea, Bauer agreed to forfeit cash and assets in excess of $23 million. His sentencing is set for March 13.

Bauer is represented by New York criminal attorney Michael Bachner.

"Mr. Bauer has entered a plea of guilty to the charges and by doing so is on his first step towards going on with his life," Bachner told The Am Law Daily. Bachner added that Bauer is "extremely remorseful for his conduct," and has been lecturing students in law schools and business schools about insider trading during the time since his arrest.

Kluger's case is pending. He has not yet entered a plea after being charged in April with one count of conspiracy to commit securities fraud and two counts of securities fraud. Kluger's lawyer, Alan Zegas of Chatham, New Jersey, could not immediately be reached for comment on Bauer's plea.

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