Take one high-profile investment firm broker, one managing clerk at a law office, and throw in a middleman with a penchant for eating the written evidence at Grand Central, and what do you get? The results are a Securities Exchange Commission investigation into insider trading that sounds a lot like a bad storyline from an even worse movie.
What started out as a simple conversation between friends in February 2009 in a NYC bar quickly turned into an insider trading scam that involved millions of dollars. That’s the basis for the investigation that the SEC announced last week. It charges that Steven Metro, 40, the managing clerk at Simpson Thacher & Bartlerr LLP in New York, stole information from the files of 13 of the law firm’s clients for the express purpose of sharing that information with an undisclosed middleman. The middleman then called stock broker, Vladimir Eydelman, 42, asking him to buy additional shares of Sirius XM Radio, as Metro had disclosed to the middleman that Liberty Media Corp. was planning to invest over $500 million in the flagging company. After Eydelman also voiced anxiety over Sirius’s financial position, the middleman, a friend to both other parties, assured him of the accuracy of his information. Once the Sirius – Liberty deal was made public, Eydelman is quoted as having said, “Nice trade,” to the middleman.
SEC allegations state that Eydelman went back to his office to gather information about the next company to be targeted. In an effort to try to create a paper trail, he would e-mail the research to the middleman, including contrived thoughts about why buying the stock was a good idea. Both men seemed to think these e-mails justified why they engaged in the stock purchase.
“People often try to cover their insider trading tracks by using middlemen, destroying evidence, and creating phony documents. They should learn that sham cover stories simply don’t work and won’t deter us from finding their schemes,” said Robert A. Cohen, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit.
Although the middleman set aside funds to pay Metro as a “thank you” gesture, Metro told him to leave it in his brokerage account and then invest it for Metro once he passed him further inside information. These future transactions continued until February 2013 and included trades that he made not only on his own behalf, but also for friends, family, and clients and resulted in profits of more than $5.6 million.
Metro shared information with the middleman through various methods, including notes of ticker symbols on napkins or adhesive notes. On at least one such occasion, the middleman actually chewed up and swallowed a note while meeting Metro at Grand Central Terminal. Another method used in providing information to the middleman was Metro typing ticker symbols or company names on his cell phone screen and then indicating which one was being bought or sold. They continued with this strategy for a period of four years, investing more than $33 million in other well-known companies such as OfficeMax, Inc.
According to the FBI, Eydelman was a long-time employee for Oppenheimer & Co. at the time that he became entangled with Metro’s scheming, and he continued in his shady pursuits after making a move to Morgan Stanley. As such, Morgan Stanley has placed Eydelman on leave pending further investigation and both companies have stated that they intend to fully cooperate with authorities. A spokesperson at both companies also continued on to state that they strongly condemn insider trading of any type.
Metro was summarily terminated once Simpson Thacher found out about the charges that had been leveled against him. An email written by Brooke Gordon, spokesperson for the firm stated that the firm will review its procedures and the systems they currently have in place.
She was also quoted as saying, “Client confidentiality is of the utmost importance to Simpson Thacher, and we are reinforcing that principle to all of our lawyers and administrative staff.”
Although it is not clear how the FBI learned of the practices of the three men involved, the middleman worked with the FBI by recording conversations with Mr. Metro and Mr. Eydelman. According to the FBI complaint, in one of these encounters, Eydelman talked about how it was becoming increasingly difficult to hide the fact that their trades were based upon insider information. Yet these fears didn’t limit Eydelman’s flagrant spending of the profits he made from his crooked actions. According to U.S. Attorney, Paul Fishman, Eydelman used the ill-gotten gains buy a 2011 Maserati GranTurismo for $117,700, spent tens of thousands of dollars in jewelry, and a house in Colts Neck, N.J.
Both of the men were charged with securities fraud – Metro, 9 counts, Eydelman, 8 counts. Additional charges included each being charged with four counts of tender offer fraud and conspiracy to commit securities fraud and tender offer fraud.
In addition to these charges, Simpson Thacher has filed suit against Metro for the theft of its data, and an arrest warrant was issued by the U.S. District Court in Newark, NJ. The men appeared in court on March 19, 2014 and the magistrate set bail for each man at $1 million.
“Law firms are sanctuaries for the confidential treatment of client information, and this scheme victimized not only a law firm but also its corporate clients and ultimately the investors in those companies,” Daniel Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit, said in a statement.
The Blum Law Group specializes in helping people who have been victimized by brokers/firms. If you believe you have suffered financial losses as the result of this insider trading scam, give us a call at 1-877-STOCK-LAW for a free consultation.