September 21, 2020

DealBook: Middleman in Insider Trading Triangle Says There Was Once a Fourth

Kenneth T. Robinson leaving federal court in Newark on Monday. He is helping the government with its case against two others.Craig Ruttle/Bloomberg NewsKenneth T. Robinson leaving federal court in Newark on Monday.

8:34 p.m. | Updated

A man accused of being the middleman in an insider trading operation that spanned nearly two decades said on Monday that at least one other person — someone not previously disclosed — was involved in the suspected scheme.

The disclosure came as the middleman, Kenneth T. Robinson, pleaded guilty to securities fraud in the United States District Court in Newark. Mr. Robinson has agreed to cooperate with the government’s case against co-defendants Matthew Kluger, once a lawyer at some of the nation’s top merger and acquisition law firms, and Garrett Bauer, a trader.

Federal prosecutors in New Jersey filed charges on Wednesday accusing Mr. Kluger of stealing secret information from his law firms about pending mergers and leaking it to Mr. Bauer, who used the inside information to buy the stocks of companies involved in the deals. The operation netted the men more than $34 million, prosecutors said on Monday, raising their earlier estimates by $2 million.

On Monday, Mr. Robinson said he shuttled the information — and cash — between Mr. Kluger, 50, and Mr. Bauer, 43. The men went to great lengths to avoid detection, plotting their actions on pay phones and prepaid cellular phones, Mr. Robinson said.

Mr. Kluger, prosecutors said, began the scheme in 1994, when he was a summer associate at the Wall Street law firm Cravath Swaine Moore. He continued leaking the information, with some interruptions, when he joined Skadden, Arps, Slate, Meagher Flom and Wilson Sonsini Goodrich Rosati. Mr. Robinson said in court on Monday that Mr. Kluger also leaked inside information while he was a lawyer at Fried Frank.

Mr. Robinson, 45, further disclosed for the first time that at least one other person was involved in the scheme. Mr. Robinson said in court that about 10 years ago, he passed insider tips from Mr. Kluger to another unnamed person.

The scheme halted in 1999, when the men apparently feared that authorities were on their trail. The scheme restarted in 2001, when Mr. Kluger worked at Fried Frank, Mr. Robinson said.

Over the course of 17 years, Mr. Bauer traded on insider tips surrounding some 15 mergers and acquisitions, Mr. Robinson said, though he could not recall an exact number.

“It was very hard to remember every one,” he told the judge.

Mr. Robinson, appearing in a dark suit and yellow tie, pleaded guilty to one count of conspiracy to commit securities fraud and two counts of securities fraud.

Mr. Robinson signed a plea agreement that could send him to prison for up to seven years. But the judge, Katharine S. Hayden of the United States District Court of New Jersey, said on Monday that she could decide to overrule the agreement, as well as impose thousands of dollars in fines.

Mr. Robinson is the linchpin of the government’s case.

Authorities searched his home around March 8, and shortly thereafter, he started secretly recording conversations with Mr. Kluger and Mr. Bauer, his close friends.

“In many criminal cases, the testimony of one person can be instrumental in our investigation and prosecutorial strategy,” Paul Fishman, the United States attorney for New Jersey, said on Monday.

Judge Hayden agreed to let Mr. Robinson remain free on a $2 million bond until his sentencing hearing, which is scheduled for July.

In a separate hearing on Monday afternoon, Mr. Bauer was released on a $4 million bond into the custody of his mother. Mr. Bauer, who appeared in court in designer jeans and a sweater, will remain on electronic monitoring in his $6.7 million home on the Upper East Side of Manhattan. He has been banned from trading securities.

Authorities have seized many of Mr. Bauer’s assets, including $290,000 from Citibank accounts, $11.6 million from a trading account and about $9 million from a Goldman Sachs account.

Article source: http://feeds.nytimes.com/click.phdo?i=f077c12565548de838ae0df4c6bb4c26

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