US authorities say Garrett Bauer and Matthew Kluger ran decades-long scheme profiting from mergers and acquisitions
A trader accused of a $31.6m (£19.4m) insider dealing scam allegedly told his co-conspirator he should take $175,000 they had just made and "burn it in a fire", according to US federal prosecutors.
US authorities have arrested Garrett Bauer, a trader, and Matthew Kluger, a lawyer, and accused them of operating a decades-long scheme to profit from inside knowledge about forthcoming mergers and acquisitions.
According to New Jersey's district attorney, Kluger, a former employee at the law firm Wilson Sonsini Goodrich & Rosati, would search its computers for non-public information and pass it on to an unnamed middleman. It is alleged that Bauer then placed trades for himself, Kluger and the middleman. Once the deal was announced, Bauer allegedly sold the shares, keeping most of the profit for himself but passing on a portion to his co-conspirators.
To evade detection, the three are alleged to have used disposable mobile phones and pay phones. According to the authorities, in March they became concerned the scheme might be uncovered and destroyed phones, computers and other records. Bauer allegedly told the middleman he should burn $175,000 from a recent transaction.
The investigation was conducted by Paul Fishman, the US attorney for New Jersey, as well as officials from the Securities and Exchange Commission, the FBI and the Internal Revenue Service. The alleged scheme came to light after the FBI and IRS raided the home of the middleman.
The authorities say the trades entailed at least nine pending mergers and acquisitions involving companies advised by Wilson Sonsini including Adobe, 3Com and McAfee. The trades generated over $31.6m. The middleman is said to have profited by $875,000 and Kluger by at least $500,000.
The court records give few details about the middleman, but say he is a former colleague of Kluger and Bauer and has known Kluger since at least 1987. Bauer, 43, is a self-employed broker dealer. Kluger, 50, a New York University law graduate, is the president of a transportation company.
Kluger devised the scheme in the mid-1990s, according to the authorities, and brought in the middleman, who persuaded Bauer to place the trades. The pair would allegedly meet in Atlantic City, New Jersey, hoping to use gambling as a cover for their trading gains.