Biggest Insider Trading Case in NJ History Has Links to Law Firms

Lawyer who worked at top law firms allegedly shared secret merger information

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    NEWSLETTERS

    NBCNewYork
    One of the two suspects arrested in connection with the ongoing FBI insider training probe.

    The FBI has arrested a banker and a Washington, D.C. attorney on insider trading charges in connection with a case prosecutors are calling the largest insider-trading bust in New Jersey history, law enforcement officials said.

    Garrett Bauer was arrested Wednesday morning on securities fraud charges and was taken to the FBI offices in New Jersey. Investigators said he spent more than $7 million on fancy homes with the illegal millions he made.

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    News 4 has exclusive details on one of the biggest insider trading scams in New Jersey history.

    Washington, D.C.-based attorney Matthew Kluger was also charged, officials said.

    U.S. Attorney Paul Fishman, SEC and FBI officials detailed the charges at a news conference. 

    Officials said for years Kluger revealed information about mergers his prominent law firm, Wilson, Sonsini, Goodnick and Rosato, was working on and that information was shared with Bauer.  

    In addition to stealing and using confidential information from the Wilson firm, the suspects are accused of taking data belonging to powerhouse firms Cravath Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom as well.  Kluger had worked at all of those law firms over the years.

    Kluger, an Oldwick, N.J., native, is currently living in Oakton, Va.

    In one instance in 2009, prosecutors said Kluger allegedly accessed confidential information about Sun Microsystems from his law firm computer.  That information allegedly helped Bauer decide to purchase more than four million shares of stock in the tech firm.

    Prosecutors also pointed to other stock purchases in other companies dating to 2006.  Other company stock the two men allegedly improperly traded on include ADIC, Palm, 3 Com, Visual Sciences, Zoran among others.

    Prosecutors said Kluger began his leaking of information as a summer associate at Cravath, reaching out to the unnamed middleman who then contacted Bauer. The scheme allegedly grew from there.

    Fishman said Bauer split the proceeds in cash, at times tying up ATM machines 15 minutes at a time, withdrawing $5,000 per machine.

    Bauer had worked at RBC Professional Trader Group, JAG Trading and Lighthouse financial and most recently was conducting trades from his $6.5 million dollar Upper East Side apartment, prosecutors said.

    Investigators are seeking to seize his East 84th Street condo as well as a house in Boca Raton, Fla., which they said was bought with illegal proceeds.

    Newark FBI Director Mike Ward said the criminal suspects had the "greed is good" mentality as portrayed in the movie "Wall Street."

    Ward said the suspects even discussed burning $175,000 in cash and washing it in a washing machine fearing the FBI would find their fingerprints on it.

    The FBI, using a cooperator, recorded conversations between the suspects. Court papers show Kluger telling the informant that, even if arrested, he would not cooperate because he knew he'd be facing prison time.

    Bauer was allegedly recorded saying: "The fact is we did something wrong. So it is not like we are convicted of doing nothing. We did something wrong here."

    Investigators said the pair allegedly invested $109 million and made $32 million in illegal profits over the years.

    These two arrests come as some Justice Department officials have called insider trading on Wall Street "rampant."

    Bauer's attorneys said their client is "not pleased" and said there are inaccuracies in prosecutors' reports.

    Kluger appeared before a judge in Virginia, without an attorney. He has begun the process for a court-appointed lawyer.

    A spokesman for law firm Skadden said the firm has "strict policies" to protect client information, adding that it would be disappointing if policies were not followed in this instance.