Matthew Kluger, a corporate attorney, and Garrett Bauer, a Wall Street trader, allegedly had at least 2 things in common:  a mutual friend and a desire to profit off of insider information.  And for 5 years and 11 deals, the trio "plotted to fly under law enforcement radar by using disposable phones to hide their communications, cash withdrawals to obscure the flow of tainted money, and a middleman to conceal Kluger as the secret source of inside information," according to Robert Khuzami, Director of SEC Enforcement.

In a parallel criminal action, the U.S. Attorney’s Office for the District of New Jersey announced the arrests of Kluger and Bauer.

        According to the SEC.   From at least December 2005 through March 2011, Matthew Kluger, 50, was a corporate associate at Wilson Sonsini Goodrich & Rosati, focusing on M&A deals.  Beginning in or around April 2006, Kluger performed searches on Wilson Sonsini's computer network to identify documents establishing that a client of the firm was about to participate in a merger or acquisition.  Upon identifying nonpublic information about an impending transaction, Kluger tipped the Middleman, who passed the information to Garrett Bauer, 43, using public telephones or prepaid disposable mobile telephones to avoid detection. Bauer then placed trades for himself, and on behalf of, and for the benefit of Kluger and the Middleman.  Once the deal was announced, Bauer sold the stock, keeping the majority ofthe proceeds for himself, and passing a portion of the profits, in cash, to the Middleman, who distributed a portion to Kluger.

The Middleman, whose identity has not been revealed, allegedly passed along information on at least 9 of the 11 deals to Bauer, using public telephones and prepaid disposable mobile phones.   Bauer allegedly used that information to generate illicit profits of nearly $32 million.  He withdrew cash from his bank accounts and paid hundreds of thousands to the middleman who, in turn, delivered at least $500,000 to Kluger for his role in the scheme.  The Middleman, who generated $693K in illicit profits by trading on the other 2 deals, shared $160K of these profits with Kluger. 

    SEC Staff Credits.   The investigation was conducted by Colleen Lynch, David Snyder, John Rymas - all members of the Market Abuse Unit in the Philadelphia Regional Office.  Jeffrey Boujoukos, Scott Thompson are handling the litigation.  The SEC investigation continues.

For additional details, go to:  [SEC Release 11-85, 4/7]   and   [SEC Complaint - Case No. 11-cv-01936-KSH]

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The 11 M&A deals that the ring allegedly traded on between April 2006 and March 2011:

1. acquisition of Advanced Digital Information Corp. by Quantum Corp., announced May 2, 2006.
2. acquisition of Acxiom Corp. by multiple entities, announced on May 17, 2007.
3. strategic recapitalization of Palm Inc. with Elevation Partners LP, announced June 4, 2007.
4. planned acquisition of 3Com Corp. by Bain Capital LLC, announced Sept. 28, 2007.
5. acquisition of Visual Sciences Inc. by Omniture Inc., announced Oct. 25, 2007.
6. acquisition of Ansoft Corp. by Ansys Inc., announced March 31, 2008.
7. acquisition of Sun Microsystems Inc. by Oracle Corp., announced April 20, 2009.
8. acquisition of Omniture Inc. by Adobe Systems Inc., announced Sept. 15, 2009.
9. acquisition of 3Com Corp. by Hewlett-Packard Co., announced Nov. 11, 2009.
10. acquisition of McAfee Inc. by Intel Corp., announced Aug. 19, 2010.
11. acquisition of Zoran Corp. by CSR PLC, announced Feb. 20, 2011.