Federal agents arrested and charged Matthew Kluger ’84 with securities fraud and money laundering Wednesday, accusing the Washington, D.C., lawyer and former School of Hotel Administration student of insider trading for the past 17 years.
“So far, our investigation has documented more than $109 million in illegal trades and a profit for the co-conspirators of $32 million,” United States Attorney Paul Fishman said during a press conference.
According to criminal complaints filed by federal investigators, Kluger, proprietary trader Garrett Bauer and a third unidentified conspirator used pre-paid cell phones to communicate non-public information about companies that Kluger’s law firms advised.
Kluger told the unidentified conspirator about companies and numbers of shares he wanted to buy, and the unidentified conspirator relayed that information, along with information regarding the shares Kluger was purchasing, to Bauer.
Although this scheme started more than a decade ago, investigators were only able to link Kluger with Bauer in 2009 when the unidentified conspirator started to trade for himself using the same information, criminal complaints stated.
The New York Times reported Friday that public records and people close to the investigation indicate that Kenneth Robinson, a mortgage broker on Long Island and a friend to both of the accused, is the unidentified conspirator who led to their downfall.
Interim Deputy University Spokesperson Claudia Wheatley said she could not comment on whether or not Kluger had donated to Cornell.
In 2004, Kluger published a letter in the Cornell Hotel School’s News Magazine with information about his personal life.
Kluger attended the New York University Law School in 1995 and “was not remembered by many classmates,” The Times reported Friday.
The Federal Bureau of Investigation alleged Kluger leaked mergers and acquisitions information from Cravath, Swaine & Moore, Skadden, Arps, Slate, Meagher & Flom and Wilson Sonsini Goodrich & Rosati — prominent law firms that often counsel high-profile corporate clients.
Among the transactions Kluger and Bauer benefited from were Oracle Corp.’s acquisition of Sun Microsystems Inc., Adobe Systems Inc.’s acquisition of Omniture Inc. and Intel Corp.’s acquisition of McAfee Inc., federal investigators said.
“[Kluger] exploited his access to the firm computer system to peek at the title of documents from other upcoming non-public transactions, in which other lawyers were working on,” Fishman, the U.S. Attorney, said. Investigators speculated that Kluger used other lawyers’ clients to conceal his own involvement.
To further conceal their tracks, Bauer saved his groups’ proceeds in at least six separate Citibank accounts and withdrew them from different ATMs at $5,000 per machine, Fishman said.
Since all U.S. banks are required to file transactions of more than $10,000 that occur on the same business day with the Internal Revenue Service, these withdrawals avoided regulators’ scrutiny. After Bauer extracted the requested amount, all three met in Atlantic City, N.J., to use gambling as a cover story for cash disbursements, the complaints stated.
Prosecutors also charged Kluger and Bauer with obstruction of justice for destroying evidence about their insider trading activities.
According to the transcription of a phone call between Kluger and the unidentified conspirator, Kluger said, “As long as [Bauer] keeps his mouth shut and I keep mine and you keep yours, I don’t think they’re gonna find enough of anything … I got rid of my computer. I got rid of my iPhone where I had looked up some stock quotes.”
Additionally, the transcription stated that Kluger said investigators do not have sufficient evidence only based on cash transfers, and prosecutors do not like to go to court without recorded phone calls. Allegedly, Bauer was also caught on tape asking the unidentified conspirator to burn $175,000 in cash because Bauer’s fingerprints were on the money.
These charges come among a series of insider trading investigations by federal agents in recent years, according to The Times.
“Insider trading has real consequences for the markets and investors, and today it has real consequences for people who try it,” Fishman said.
Original Author: Andrew Hu