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SEC Reaches $33 Million Settlement in Insider Trading Case

A stock trader, a lawyer and a
mortgage broker who all pleaded guilty to an insider-trading
scheme that spanned 17 years agreed to pay $33 million to
resolve a U.S. Securities and Exchange Commission lawsuit.

Stock trader Garrett D. Bauer will pay $31.7 million,
mortgage broker Kenneth T. Robinson will pay $845,235 and
attorney Matthew H. Kluger will pay $516,510, according to a
statement by the SEC. The agency sued the men in federal court
in Newark, New Jersey, where they pleaded guilty last year.

They admitted Kluger stole nonpublic data on about 30
corporate transactions while working at four law firms,
including Skadden, Arps, Slate, Meagher Flom LLP and Wilson,
Sonsini, Goodrich Rosati PC. Kluger passed tips to Robinson,
who gave them to Bauer, who made trades. The companies included
Sun Microsystems Inc., 3Com Corp. and Acxiom Corp. (ACXM)

“Bauer, Kluger and Robinson schemed to outsmart law
by structuring their relationships and
communications to avoid detection and frustrate insider-trading
detection mechanisms,” Robert Khuzami, the SEC’s enforcement
director, said in a statement.

The men consented to final judgments that are subject to a
judge’s approval, according to the statement. Bauer has agreed
to a bar on working as a broker, while Kluger agreed that he
won’t appear before the SEC as an attorney. All three men are
scheduled to be sentenced on June 4 in Newark.

Banks Accounts, Condo

Bauer already forfeited about $20 million in bank accounts
and trading accounts, as well as a $6.65 million condominium on
the Upper East Side of Manhattan and an $875,000 home in Boca
, Florida. He declined to comment on the SEC statement.

“In his efforts to resolve the insider-trading charges
with the Securities and Exchange Commission, Mr. Bauer has
agreed to make full disgorgement of the gross profits that he
made,” said Bauer attorney Michael Bachner.

Robinson attorney Francis J. Murray and Kluger attorney
Alan Zegas didn’t immediately return calls seeking comment.

Robinson, 45, of Long Beach, New York, was a mortgage
broker who secretly recorded Kluger and Bauer for the U.S.
Federal Bureau of Investigation. All three were criminally
charged in April 2011. The SEC sued Kluger and Bauer last year
and filed a complaint against Robinson today. In two instances,
according to the SEC, Robinson made trades without Bauer.

Searched Computers

In his plea, Kluger said the scheme started in 1994, when
he first worked as an associate for New York-based firm Cravath,
Swaine Moore LLP. Kluger at first passed tips only on those
deals on which he worked. As the scheme developed, Kluger stole
information about deals on which he didn’t work that he learned
about by searching the firm’s computers.

The scheme continued when Kluger worked from 1998 to 2001
at Skadden Arps, another New York-based firm, and when he worked
from 2001 to 2002 at Fried Frank Harris Shriver Jacobson LLP,
Kluger admitted. It began again in December 2005 and ran until
March 2011, when Kluger worked in the Washington office of
Wilson Sonsini.

Kluger said the men used prepaid mobile phones and pay
phones to discuss the deals and elude detection. After learning
in March 2011 of the probe by the FBI and the U.S. Internal
Revenue Service, Kluger destroyed a mobile phone, a computer and
an iPhone he used to look up stock quotes, he said.

The cases are Securities and Exchange Commission v. Kluger,
Bauer, 11-cv-01936 and SEC v. Robinson, 12-cv-02438, U.S.
District Court, District of New Jersey (Newark).

To contact the reporter on this story:
David Voreacos in Newark, New Jersey, at

To contact the editor responsible for this story:
Michael Hytha at

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