Call it a cautionary tale for young corporate lawyers who might be inclined to discuss their work in what they think is an innocent fashion.

On Thursday, federal prosecutors in Manhattan charged two former stockbrokers, Thomas Conradt of Denver and David Weishaus of Baltimore, with running an insider trading scheme that yielded more than $1 million in illicit profits based on confidential information about International Business Machines’s $1.2 billion acquisition of analytics software maker SPSS in 2009.

In addition to criminal charges filed by the Justice Department, Conradt and Weishaus also face civil charges brought by the SEC. The two worked together in the Manhattan office of Westport, Conn.–based broker-dealer Euro Pacific Capital and were also once law school classmates at the University of Baltimore. The Justice Department and SEC both state in court filings that the inside information the two men traded on originated with an attorney working on the IBM side of the SPSS acquisition.

The civil complaint states that IBM’s outside law firm was retained to work on a potential deal for SPSS in January 2009, that IBM subsequently made a nonbinding offer to SPSS in April, and that the two companies entered into a “supplemental agreement” in late May.

While neither agency identifies either the name of the lawyer (the Justice Department calls him “Attorney-1″ and the SEC uses the term “Associate”) or firm in question, it was reported at the time that Armonk, N.Y.–based IBM had turned to a team of lawyers from Cravath, Swaine & Moore led by corporate partner Scott Barshay, a longtime M&A adviser to the company, for outside counsel on the matter. That reporting was based on information provided by the firm and contained in publicly available securities filings.

According to the complaints filed by the Justice Department and the SEC, the scheme allegedly hatched by Conradt and Weishaus began in May 2009 when the unnamed lawyer met an individual identified by federal prosecutors as “CC-3″ and the SEC as the “Source” for what is variously described as brunch or lunch. The source, identified as an Australian citizen who worked as a research analyst at a major international financial services firm in Stamford, Conn., is described by the SEC as the associate’s “closest friend in New York.”

During the get-together in late May 2009, the lawyer, who had been at his firm for eight months and had just been assigned to work on the IBM–SPSS deal, discussed with his friend his new role on the looming transaction as part of a broader conversation about what working on such a major M&A deal might mean for his career at the firm.

It was not an uncommon exchange between the two—or one that the lawyer had any reason to think might lead to wrongdoing, according to the government’s complaints against Conradt and Weishaus.

Indeed, the associate and the source “frequently shared both personal and professional confidences with one another and had a history of maintaining and not betraying those confidences,” according to the SEC’s civil complaint. “Based on their history, pattern, and practice of sharing confidences, each knew or reasonably should have known that the other expected such information to be maintained in confidence.”

The SEC states that over the course of their friendship, the associate never revealed or traded on any confidential information that the source shared.

But on June 1, 2009, the first business day after the associate mentioned IBM’s pending acquisition of SPSS, the civil complaint claims that the individual identified as the source (also known as CC-3 by federal prosecutors) began the process of purchasing stock in the target company as a direct result of the information disclosed by his close friend.

On July 23, 2009, the source informed the associate that he had traded on the inside information, according to the civil complaint. The SEC and Justice Department claim that the associate expressed outrage and demanded that the source sell off all of his SPSS holdings. The source did so, but still held 500 shares of SPSS common stock at the time IBM officially announced its intention to acquire the Chicago-based company on July 28, resulting in $7,600 in profits, according to the SEC.

Meanwhile, the source had fed what he learned from the lawyer about IBM’s potential SPSS acquisition to his roommate, Conradt, according to the government. Conradt, in turn, told Weishaus, and the two subsequently traded in SPSS securities ahead of the company’s announced sale to IBM on July 28, according to the criminal and civil complaints, which include snippets of instant messages between the two exhorting one another to “keep this in the family” because they didn’t “want to go to jail.”

Conradt and Weishaus made only $2,538 and $129,290, respectively, after selling their SPSS holdings, according to the SEC, although three other unindicted coconspirators cited by the Justice Department allegedly reaped sums of $629,954, $254,360, and $7,900 as a result of their own inside trades. (The latter figure represents the nearly $8,000 made by the source, or CC-3, through his inside trades.)

The Justice Department and SEC filings offer few additional details about the associate, who is not accused of any wrongdoing, except that he is a citizen of New Zealand and transferred into the M&A group at the law firm advising IBM on the SSPS deal sometime in December 2008.

A comparison of the five Cravath associates and one summer associate identified in The Am Law Daily’s July 28, 2009, story as working on the deal against those listed in a Cravath press release issued the same day and available on the firm’s website reveals several discrepancies. Specifically, the Cravath press release includes two names not included in the original report and omits one.

That missing associate, Mike Dallas, is identified on his LinkedIn profile as having strong ties to New Zealand. Dallas obtained a law degree in 2004 from the Victoria University of Wellington in New Zealand. From there, he went to work at Chapman Tripp, one of New Zealand’s largest law firms, before joining Cravath in September 2008—about eight months prior to the May 2009 get-together that the government says details about IBM’s SPSS deal were shared.

Dallas’s LinkedIn page says he left Cravath in December 2010, roughly the same time that the criminal complaint states that Attorney-1 and CC-3 became aware that the SEC was investigating insider trading related to the deal.

“Shortly thereafter, in November 2010, the Source confessed to the Associate that he had tipped the inside information to Conradt,” states the SEC in its complaint. “Approximately one week later, the Associate visited the Source at the Source’s apartment and observed the Source packing up his belongings. The Source informed the Associate that he was leaving the [U.S.] and returning to Australia because, in light of the [SEC]‘s investigation, it was his ‘best option.’”

According to Dallas’s LinkedIn page, he is now an in-house legal adviser at Spire Healthcare, the second-largest private hospital group in the U.K. An email sent to Dallas at Spire Healthcare received an out-of-office reply stating that he was out on “annual leave.”

Two other Cravath associates identified by the firm in its press release as working on IBM’s acquisition of SPSS, Daniel Birnhak and Mark Dundon, have joined Weil, Gotshal & Manges within the past year. Neither responded to requests for comment about the deal or the insider trading allegations tied to the transaction. Kelly Halpern-Skoglund, another Cravath associate who worked on the matter, joined Reed Smith in February 2010. She declined to comment.

Other Cravath associates that worked on the deal who remain with the firm include Jisoo Kim—the onetime summer associate—M.C. Tania Balthazaar, and Sophia Tawil. Barshay, the corporate partner who took the lead for Cravath on the transaction, did not respond to a request for comment, nor did tax specialist J. Leonard Teti II, the sole remaining associate to have also worked on the SPSS acquisition for IBM, and whom the firm announced in November was being promoted to partner.

Three Cravath spokeswomen also did not respond to requests for comment about the insider trading case, nor did presiding partner Evan Chesler, who was in Milwaukee on business Friday. The Justice Department does note that the unnamed New York law firm advising IBM “took various precautions” to keep the potential deal between both companies secret in order to prevent insider trading. (Mayer Brown advised SPSS on its sale to IBM.)

“Among other things, the New York Law Firm used code names for IBM and SPSS in the documents that it prepared in connection with the IBM/SPSS Transaction,” according to the criminal complaint. “At all relevant times, the New York Law Firm maintained a strict written policy prohibiting any person connected with the firm from, among other things, ‘[r]evealing ‘inside’ information to anyone else except on a strict ‘need to know’ basis.’ “

These precautions are standard practice among Am Law 100 firms, and on Sept. 29, 2008, the associate identified by prosecutors as Attorney-1 certified to his firm in writing that he had read and understood the firm’s policy on insider trading, according to the criminal complaint.

The insider trading charges against Conradt and Weishaus do not appear to have hurt Cravath’s relationship with IBM. The firm advised the company in August on its $1.3 billion bid to buy human resources software maker Kenexa, according to previous reports. Robert Weber serves as general counsel and senior vice president for legal and regulatory affairs at IBM.

Ellen Davis, a spokeswoman for the U.S. attorney’s office in Manhattan, declined to comment on the identity of the unnamed associate in question. Assistant U.S. attorneys John Zach and David Massey, who are leading the government’s team prosecuting the insider trading charges from the Justice Department’s securities and commodities fraud task force, either declined or did not respond to requests for comment on the matter.

Mary Hansen, A. Kristina Littman, and accountant John Rymas conducted the SEC’s insider trading investigation out of the regulator’s Philadelphia office. G. Jeffrey Boujoukos and Catherine Pappas are handling the agency’s civil litigation against Conradt and Weishaus.

The case isn’t the first insider trading investigation to touch Cravath. Last year Matthew Kluger, a former Cravath associate who also once worked at Fried, Frank, Harris, Shriver & Jacobson, Skadden, Arps, Slate, Meagher & Flom, and Wilson Sonsini Goodrich & Rosati, was charged in connection with an insider trading probe that netted defendants roughly $37 million in illicit proceeds over more than a decade.

Kluger, who worked out of Cravath’s New York office from 1994 to 1997, pleaded guilty to the insider trading charges in December 2011 and was sentenced to 12 years in prison this past June. The sentence is the longest-ever handed down in an insider trading case.

As for Conradt and Weishaus, the two defendants have been taken into custody and could appear before a federal judge in Manhattan as early as this week. They both have been charged with multiple counts of securities fraud and each face up to 20 years in prison.

Conradt, 34, was admitted to practice law in Maryland in March 2011, according to state bar records, and information disclosed by the SEC states that he passed the Colorado bar exam earlier this year. His lawyer, Sharon Feldman of the Andrew M. Lawler, P.C., law office in New York, did not respond to a request for comment.

Weishaus, 32, is being advised by Michael Grudberg, a partner at New York’s Stillman & Friedman. He declined to comment on the government’s case against his client.