More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
A corporate lawyer and a trader were charged Wednesday with running a 17-year conspiracy to trade on secrets about corporate mergers stolen from three of the nation's most prominent law firms, in one of the largest U.S. insider trading cases on record.
Reuters reports that Matthew Kluger, who until last month was a lawyer at Wilson Sonsini Goodrich & Rosati PC, and the trader Garrett Bauer were accused by the U.S. government of reaping more than $32.2 million of illicit profit by trading on tips about upcoming mergers and acquisitions.
Reuters notes the case is one of the largest in U.S. history based on the amount of illegal profit, a sum that could grow as investigators probe further, a person familiar with the case who was not authorized to talk publicly said.
Prosecutors said Kluger passed tips to an unnamed co-conspirator about mergers such as Oracle's takeover of Sun Microsystems and Adobe Systems' takeover of Omniture. The co-conspirator would then tip Bauer, who would make trades for all three of them based on the inside information, prosecutors said.
Investigators said the plan was hatched after an Atlantic City, N.J., meeting, in which Bauer agreed to use gambling as a cover story to explain cash withdrawals he was making to funnel illegal profits to Kluger.
According to Reuters, Kluger and Bauer invested more than $109 million in the scheme, which involved trades dating as far back as Johnson & Johnson's 1994 takeover of Neutrogena and IBM's takeover of Lotus Development the next year.
Prosecutors also said Bauer in late 2009 spent more than $7 million of proceeds from the scheme to buy two homes: a $6.65 million condominium on Manhattan's Upper East Side, and an $875,000 home in Boca Raton, Fla.
Kluger and Bauer were charged in a 17-count criminal complaint, including 11 counts of insider trading, four counts of obstruction of justice, conspiracy to commit insider trading, and conspiracy to commit money laundering.
The Securities and Exchange Commission filed related civil charges.
The case is U.S. v. Bauer et al, U.S. District Court, District of New Jersey, No. 11-mag-03536.