Ex-Big Law Associate Loses Challenge to 12-Year Insider Trading Sentence
Matthew Kluger will continue to serve hot dogs after he unsuccessfully argued that federal prosecutors in New York wouldn't have bothered to bring his $37 million insider trading case.
September 04, 2018 at 06:28 PM
4 minute read
A federal judge last week denied an attempt by Matthew Kluger to vacate the 12-year prison sentence he received for his role in a 17-year, $37 million insider trading scheme that relied on his access to big-ticket merger information as an associate at various leading Am Law 100 firms.
Kluger, who was sentenced in 2012 at 51, had argued that his sentence should be vacated because his lawyer failed to argue that a federal court in New Jersey was the wrong venue for his case and that the government failed to prove he had destroyed his cellphone and computer, which he claimed was the basis of an obstruction of justice charge to which he pleaded guilty.
In dismissing Kluger's motion, U.S. District Judge Katharine Hayden of the District of New Jersey said New Jersey was the proper venue and that there was other evidence that Kluger obstructed justice even if the government couldn't prove Kluger had destroyed evidence on his phone and computer.
Kluger, represented by Frank Arleo of West Orange, New Jersey-based Arleo & Donohue, also argued that if he had been tried in the Southern District of New York, prosecutors may have elected not to pursue his case because they would view it as “unimportant when compared to other insider trading cases they bring.” Hayden dismissed that as a “speculative belief.”
In December 2011, Kluger pleaded guilty to four charges—committing conspiracy to commit securities fraud, securities fraud, conspiracy to commit money laundering and obstruction of justice—related to what prosecutors called a “massive” scheme that netted him and two others some $37 million.
Kluger's insider trading operation began in 1994, when Kluger was a summer associate at Cravath, Swaine & Moore. It carried on for 17 years, as Kluger worked at firms including Skadden, Arps, Slate, Meagher & Flom; Fried, Frank, Harris, Shriver & Jacobson; and Wilson Sonsini Goodrich & Rosati.
At each firm, Kluger stole confidential information related to pending corporate transactions on which they advised clients. Kluger would pass the information to a middle-man, former mortgage broker Kenneth Robinson. Robinson would send the tips to former stock trader Garrett Bauer. The scheme lasted for so long, in part, because Kluger and Bauer did not know each other, federal prosecutors said at the time.
In settlements with the U.S. Securities and Exchange Commission, Bauer was forced to forfeit roughly $31.6 million, while Kluger agreed to fork over $516,000 and Robinson paid back $845,000.
In a 2014 interview with Fortune, Kluger said from behind bars that he earned $15 a month for his work serving food in his federal penitentiary. He said he had not been allowed to cook yet, despite an undergraduate degree from Cornell University in hotel administration.
“I know my way around food service. But they're not really interested in my expertise,” Kluger told Fortune. “It's like, 'Yeah, that's nice. Now go ahead and serve some food. Serve some hot dogs, whatever.'”
The most money Kluger could make in that job, assuming he worked at it every month of his 12-year sentence and never received a raise, is $2,160. Federal prison records show that Kluger, set to be released in February 2023, is currently serving his time at a low-security facility near El Paso, Texas.
In May, Steven Metro, a former managing clerk at Simpson Thacher & Bartlett, received a 37-month prison term in a resentencing on insider trading charges. And in February, former Foley & Lardner and Bradley Arant Boult Cummings partner Walter “Chet” Little received a 27-month sentence in a separate insider-trading case.
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