SEC charges corporate lawyer and Wall Street trader with insider dealing

SEC says actions of the two men "make it clear beyond any doubt they were involved in an illegal scheme"

Robert Khuzami, director of the US SEC's division of enforcement

A corporate lawyer and a Wall Street trader have been charged with insider trading by the US Securities and Exchange Commission (SEC). Matthew Kluger and Garrett Bauer are accused of sharing inside information in advance of at least 11 mergers and acquisitions. The SEC alleges the pair communicated indirectly through a mutual friend to facilitate the scheme and avoid detection.

Kluger worked for law firm Wilson Sonsini Goodrich & Rosati. According to the SEC's complaint, he accessed confidential information on several large mergers and acquisitions, including the acquisition of 3Com by Hewlett-Packard announced in November 2009 and Intel's acquisition of McAfee announced in August 19, 2010. Kluger allegedly passed this information to an unnamed middleman, who then passed the information to Bauer. Communication with the middleman was carried out over public phones and pre-paid disposable mobile phones in an attempt to avoid exposure.

According to the SEC, the information passed to Bauer led to illegal trades generating profits totalling almost $32 million. Bauer is alleged to have withdrawn funds from his bank account, giving the middleman hundreds of thousands of dollars in cash. The middleman then passed at least $500,000 on to Kluger for his part in the scheme. The SEC alleges further that the middleman traded in two deals based on information received from Kluger, profiting at least $690,000. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgement interest, and financial penalties against Kluger and Bauer. There is no mention of charges against the middleman.

In a parallel criminal action, Kluger and Bauer have been arrested by the US Attorney's Office for the District of New Jersey. The two men are described by the SEC as having "plotted to fly under the law enforcement radar". Robert Khuzami, director of the SEC's division of enforcement, says the actions of the two men "make it clear beyond any doubt they were involved in an illegal scheme".