NEWARK, N.J. (AP) — A former attorney who admitted feeding privileged information to two confederates over the course of a 17-year insider stock trading scheme was sentenced Monday to 12 years in prison, the longest sentence ever handed out for insider trading, and the trader who reaped more than $20 million in profits from the tips received a nine-year sentence, authorities said.
U.S. Attorney Paul Fishman said former attorney Matthew Kluger’s sentence is the longest handed out for that crime. The scheme was carried out from 1994 to 2011 and is believed to be the longest ever uncovered by law enforcement, though the crimes charged dated only to 2005.
“At the end of the day, the judge agreed that these were extraordinarily serious crimes that betray people’s trust in the stock market and were motivated purely by greed,” Fishman said.
The 51-year-old Kluger, of Oakton, Va., and former trader Garrett Bauer, 44, of New York, admitted last year they conspired with a third man, New York mortgage broker Kenneth Robinson, who acted as the middleman.
Robinson was arrested in 2011 and secretly recorded conversations with the other men, including one in which Bauer discussed lighting $175,000 on fire to erase his fingerprints, according to court documents.
Robinson, who pleaded guilty to his role in the scheme, is scheduled to be sentenced Tuesday.
Kluger admitted passing advance information on company mergers to Robinson, who would give it to Bauer. The trio was estimated to have made $11 million on tech company Oracle’s acquisition of Sun Microsystems.
Assistant U.S. Attorney Judith Germano told the judge that Kluger was the mastermind.
“He had wealth, intelligence and family support,” she said. “He abused it all. Why? Because he could.”
Defense Attorney Alan Zegas argued for a shorter sentence for Kluger and said that Bauer realized the lion’s share of the profits while Kluger took only a small fraction of the total and was not aware of many trades that Bauer made on his own.
U.S. District Judge Katharine Hayden rejected Zegas’ argument and said that every one of more than 30 insider trades made by Bauer was based on information provided by Kluger, whom she characterized as “amoral” and “thuggish.” She compared the trio to drug dealers for the way they used throwaway cellphones and multiple ATM accounts to withdraw cash and exchange it in envelopes or bags.
Zegas said he would appeal the sentence.
Kluger, who said in remarks to the court that he was “deeply, deeply sorry,” insisted afterward that the sentence was too harsh. Hedge fund billionaire Raj Rajaratnam was sentenced to 11 years in October after being convicted in the biggest insider trading case in U.S. history.
“I guess it’s better to take $68 million and go to trial and be unwilling to accept responsibility for what you did,” Kluger said, referring to Rajaratnam, who maintained that he traded only on publicly available information.
Defense attorney Michael Bachner attempted to persuade the judge to reduce Bauer’s sentence by mentioning the numerous public speaking appearances Bauer has made since his arrest at business schools and law schools and the extensive work he has done with children’s charities.
“He is not like Gordon Gekko,” Bachner said, referring to the Michael Douglas character who said in the 1987 movie “Wall Street” that greed is good.
In contrast, Assistant U.S. Attorney Matthew Beck told the court, was the Bauer who upped his trading volume even after Securities and Exchange Commission regulators began probing his activities in 2007.
“That’s a moment of self-reflection for anyone,” Beck said. “That’s not what they did. Garrett Bauer instead began increasing the size of his trades. This is hubris like you’ve never seen.”
– By David Porter