Dumb insider trading call of the day

Apr 06, 2011

No one ever said insider traders were geniuses, and the guys fingered Wednesday in a $32 million tech stock scam won't change that.

The feds arrested corporate lawyer Matthew Kluger and Garrett Bauer, a registered broker who worked briefly for two no-name Wall Street firms, and charged them and a third, unnamed, co-conspirator with illegally trading ahead of 11 mergers over six years.

Kluger “repeatedly stole material nonpublic information about pending mergers and acquisitions from the computer system of his former employer, Wilson Sonsini Goodrich & Rosati,” the Securities and Exchange Commission alleged in a related complaint. Bauer then traded on the information, the SEC said, sharing some of the proceeds with Kluger and the third party, identified throughout only as “the Middleman.”

The group started its hijinks in 2005, cashing in on deals involving Intel (intc), Hewlett-Packard (hpq) and Adobe (adbe), among others. But by last month they were worrying the feds had caught on, prompting Bauer at one point to urge the middleman to burn $175,000 in cash, lest the authorities find Bauer’s fingerprints on it.

But that’s not the zaniest thing these guys did, according to the SEC. They also called one another to discuss, among other things, the importance of not calling one another. Shockingly, this strategy does not seem to have borne fruit. 

Kluger and Bauer also took steps to attempt to ensure that none of the members of the scheme would expose the scheme to law enforcement authorities. In one telephone call on or about March 18,2011, Bauer told the Middleman, "There is a good chance they're gonna eventually catch on, but if we all say nothing about each other, that's the only thing we can do, and that's the only way people can get caught. Because they have nothing until someone says something."

In another telephone call with the Middleman, Kluger stated that the transfers of money out of the accounts were not sufficient for the criminal authorities to take the case to a jury without evidence of telephone contact. Kluger said, "They don't like to go to court without phone calls, without a trail, without a - this happened at this time, that happened at - I mean look at all these cases. ... They don't have any of that here."

No, you guys are good as gold.

Also on Fortune.com:

Follow me on Twitter @ColinCBarr.

All products and services featured are based solely on editorial selection. FORTUNE may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions