Note to Insider Traders: Beware of Cell-Phone-Sniffing Dogs

by Derek Loosvelt | April 06, 2011

Today yet another major insider trading case came to light, one that centered around three individuals: Matthew Kluger (an M&A lawyer for Wilson, Sonsini, Goodrich & Rosati who previously worked for and allegedly traded on material inside information while also at two other big-swinging law firms: Cravath Swaine & Moore and Skadden Arps), Garrett Bauer (a Wall Street trader who worked for and allegedly traded on material inside information while at Lighthouse Financial Group and RBC Professional Trader Group), and CC-1 (an unnamed co-conspirator* who is also somewhat of a trader, having allegedly placed inside trades him/herself after receiving material info from his/her good pal Kluger).

The three have been accused of illegally earning $32 million over nearly two decades of insider trading on deals like Oracle's acquisition of Sun Microsystems, Adobe's purchase of Omniture, and Intel's buyout of McAfee (Kluger was the one with the 411, Bauer and CC-1 were the ones who made the trades). The three have also been accused of being some extremely bumbling criminals (despite not being busted for some 17 years; perhaps this underlines just how inept the SEC is at catching white-collar criminals).

The case against the them includes numerous wire-tapped telephone conversations on which the three discussed, among other things, placing unmarked bills into a diswashing machine in order to clean the greenbacks of fingerprints, breaking cell phones in half and disposing of them into McDonald's garbage cans while growing so paranoid that they approached random Happy Meal eaters to ask if they were FBI agents (they were not), and who will be the criminal among them to stop eating Doritos and get up off the couch while watching Seinfeld reruns to dispose of evidence.

Despite their ignorance, paranoia and laziness, the three have brought to light something that is certainly not a joke, and that may help wouldbe inside traders (as well as those inside traders already convicted and serving time on the inside). From U.S. v. Bauer and Kluger:

*CC-1 was later discovered to be a Long Island, N.Y.-based mortgage broker named Kenneth T. Robinson.

(WSJ: Prosecutors Say Lawyer Stole Secrets, Made Millions)

(The New Yorker: Prisons Use Cell-Phone Sniffing Dogs)

(Related: Career Guide to Insider Trading, Chapter 17: Evidence Shredding)

Filed Under: Finance


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