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Former Wilson Sonsini attorney admits fraud

Insider-trading ring targeted Silicon Valley mergers and acquisitions to make $32 million

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A former attorney for Palo Alto-based law firm Wilson Sonsini Goodrich & Rosati pleaded guilty in a New Jersey federal court Wednesday (Dec. 14) to four felony charges in connection with a securities-fraud scheme.

Matthew Kluger, 50, was arrested April 6 for allegedly stealing information from Wilson Sonsini's computer network, which resulted in $32 million in illegal profits for an insider-trading ring.

Kluger stole information on Silicon Valley and other company mergers and acquisitions and passed the material on to New York trader Garrett Bauer, 43, through a middleman, Kenneth Robinson of Long Beach, N.Y., according to federal criminal complaints against the men filed by the U.S. government in April.

The Securities and Exchange Commission filed a separate 22-page civil complaint on April 6.

Kluger faced one count of conspiracy to commit securities fraud -- insider trading; 11 counts of securities fraud -- insider trading; one count of conspiracy to commit money laundering; and four counts of obstruction of justice. He pleaded to four counts and agreed to forfeit $415,000 in assets.

Under the plea agreement with the U.S. Department of Justice, Kluger will be sentenced to one count of conspiracy to commit securities fraud, one count of securities fraud, conspiracy to commit money laundering and obstruction of justice.

The first count carries a maximum five-year prison sentence and maximum $250,000 fine. The other three counts each carry a maximum of 20 years in federal prison and a total of $5.75 million in fines. Bauer and Robinson have also entered separate guilty pleas, according to court records.

Kluger worked for Wilson Sonsini at its Washington, D.C., office from December 2005 through March 2011 as a corporate associate with a focus on mergers and acquisitions.

The insider-trading ring began around 1994, according to court documents. At the time, Kluger worked for prominent New York law firm Cravath, Swaine & Moore, LLP. In 1998, he worked for Skadden, Arps, Slate, Meagher & Flom, LLP.

Beginning in April 2006, four months after he began working at Wilson Sonsini, Kluger searched the firm's computer network to identify documents that showed a client was about to participate in a merger or acquisition.

He tipped Robinson, who passed the information along to Bauer using public telephones or prepaid disposable mobile phones to avoid detection, according to court documents.

Bauer placed trades for himself and on behalf of Kluger and Robinson. Once the merger or acquisition was announced, Bauer sold the stock and passed on a portion of the profits in cash to Robinson and Kluger, according to the criminal complaint.

Kluger and Bauer traded at least nine pending mergers and acquisitions in advance that were Wilson Sonsini clients.

Kluger accessed information on Silicon Valley companies, including HP's acquisition of 3Com Corp.; Intel Corp.'s acquisition of McAfee, Inc.; Adobe Systems, Inc.'s acquisition of Omniture, Inc.; and Oracle Corp.'s acquisition of Sun Microsystems, Inc., according to the complaint.

Kluger currently resides in Oakton, Va. He had his license to practice law in New Jersey revoked in September 2010 for failing to make certain required payments, according to court documents.

Kluger is scheduled for sentencing April 9, 2012, U.S. Attorney's Office spokeswoman Rebecca Carmichael said.

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Like this comment
Posted by Hmmm
a resident of East Palo Alto
on Dec 19, 2011 at 2:04 pm

Interesting that the more dramatic shooting incidents in EPA & east Menlo have drawn so many more comments than this equally spectacular but non-violent crime. What have the ramifications been to the victims of this crime? All of us taxpayers paying for the investigation & prosecution of those involved here...& so much money involved.

Like this comment
Posted by Jake
a resident of another community
on Dec 19, 2011 at 2:10 pm

white collar crime charges will continue to be an acceptable risk for some until the courts start treating these low lifes like any other criminal. Start giving them long prison sentances (general population in prisons other than low risk federal country club type) and then they may start thinking twice before ripping off companies, stock holders, pension funds, etc etc.
These thugs in designer suits ruin peoples lives for good many times when companies and industries crash and they rarely get charged let alone convicted and sent to prisons where other theives are sent to.
Then when they do get out after a few short years at a low risk fed facility they go on lecture tours, write books and teach in colleges (Milken)
In their wake they leave many many lives ruined and peoples life earnings wiped out often times.

Like this comment
Posted by Ken
a resident of Midtown
on Dec 19, 2011 at 2:20 pm

"white collar crime charges will continue to be an acceptable risk for some until the courts start treating these low lifes like any other criminal"

I completely agree. Put Barney Frank in the pen, doing hard time.

Like this comment
Posted by one percent
a resident of Adobe-Meadow
on Dec 19, 2011 at 2:26 pm

The one percenters whine when a crook steals $20 from someone on the street. This guy steals $32 million and people like him created the recession that has devastated millions of families. We need to crack down on white collar criminals even harder than we crack down on street criminals. Multi-million dollar white collar crimes should have life sentences. Throw away the key.

Like this comment
Posted by Ken
a resident of Midtown
on Dec 19, 2011 at 2:35 pm

[Post removed by Palo Alto Online staff.]

Like this comment
Posted by Hmmm
a resident of East Palo Alto
on Dec 19, 2011 at 3:05 pm

one percent, great post. Of course, there are many reasons we react strongly to person on person street crime - most especially if it's violent. But I have a friend whose parents lost nearly everything to a local con man who's now doing time. Her parents are older & had been well off. Not only did they have to sell the home that they lost, it devastated one of the parents physically due to the drawn out stress involved. She is now permanently partially disabled, but of course, white collar dirtbag didn't get convicted of personally injuring her. I'm not comparing this of course to what, say, Brian Stow has endured. But we don't know, even ourselves, how devastating news will effect us physically. For some, the result is like being the victim of a violent crime, but it's not provable.

These jerks weren't just pilfering or embezzling a little here & there; this was big time.

Like this comment
Posted by Jared Bernstein
a resident of Professorville
on Dec 20, 2011 at 10:52 am

The story would be more helpful if it stated what happened to that stolen $32M. Presumably some went in taxes, but the rest? Many non-violent dopers have had their houses and boats confiscated. What about these guys? Can Sue Dremann enlighten us?

Like this comment
Posted by mutti
a resident of Adobe-Meadow
on Dec 20, 2011 at 12:02 pm

That $32 million is all "funny money." It's what they made from the buying and selling of stocks, but since stock prices are all pretty much made-up these days, it wasn't really taken from anyone. They generated the profits out of 'nowhere.' Those that 'lost' are the people who also bought the stock, but paid more for it because these guys had run up the price. Since that's also mostly Wall Street brokers and banks, we can't fell too sorry for anyone.

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