careless whispers

Latest Insider-Trading Scheme Started When NYU Law Student Was a Summer Associate at Cravath

The Galleon insider-trading trial against Raj Rajaratnam implicated Wall Street power players like McKinsey and Goldman Sachs, or at least employees willing to spill their secrets. But it looks like the top mergers and acquisitions law firms — and possibly NYU — will be the ones disparaged in the most recent insider-trading case. The feds arrested Matthew Kluger, a lawyer, and Garrett Bauer, a trader, yesterday for an alleged $32 million insider-trading scheme that went back seventeen years and involved some of the biggest tech deals of the past decade, including Intel and Hewlett-Packard. In fact, it went all the way back to when Kluger was an NYU law student who scored a prestigious summer-associate gig with white-shoe firm Cravath, Swaine & Moore. Prosecutors allege that Kluger approached a middleman with the words, “I’ve got something.” That something being access to confidential information on M&A deals. That middleman then contacted Bauer, who worked at a venture capital firm at the time.

But Kluger’s alleged secret-stealing didn’t stop at Cravath. He also passed along insider intel while he worked at Skadden, Arps, Slate, Meagher & Flom, another top firm, from 1998 to 2001. And then most recently from his post job at Wilson Sonsini Goodrich & Rosati.

Once they realized they may have been caught, panic set off a series of ill-conceived attempts at covering up the alleged crimes. They debated burning $175,000 or putting it through the washing machine to get rid of fingerprints and broke a prepaid cell phone in half, dumping each in different McDonald’s trash cans to throw off “dogs that can sniff, that can sniff for cell phones.” But it sounds like for a while, the plan worked pretty well. “They structured their relationship so that Bauer and Kluger did not have direct contact prior to the trades,” said Daniel M. Hawke, the regional director for SEC’s Philadelphia office. Instead, the two used a mortgage broker from Long Beach to act like a middleman. It was all humming along until the middleman got a visit from the FBI and agreed to wiretap his alleged co-conspirators.

Actually, come to think of it, maybe Bauer’s process of transferring payment to Kluger and the mortgage broker was a sign things would eventually unravel. According to The Wall Street Journal, he took that $175,000 out of multiple ATMs at a bank branch near him, then “placed the money in white Citibank envelopes with the dollar amount marked on the outside of each envelope, and then placed them in a garbage bag and gave it to the co-conspirator.” Surely seventeen years is enough time to think of a better delivery method.

Feds: Insider Scheme Spanned 17 Years

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Latest Insider-Trading Scheme Started When NYU Law Student Was a Summer Associate at Cravath