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A 31-year-old stock trader who cleared more than $400,000 in profits after he learned privileged information about a merger from a Brobeck, Phleger & Harrison associate pleaded guilty to a felony Tuesday. Matthew Joel Mesplou admitted he heard about the merger of Sun Microsystems Inc. and Cobalt Networks Inc. last September from Julie Freese, a second-year Palo Alto, Calif.-based mergers and acquisitions associate who has since resigned from the firm. Mesplou pleaded guilty to making false statements to the SEC. Under terms of the agreement he will forfeit $536,000. He was also charged with insider trading by the Securities and Exchange Commission and is settling that case for $286,000, for a total forfeiture of $822,000. Freese, who could not be reached for comment, has not been charged in connection with Mesplou’s trading. Nanci Clarence, who Freese retained during the investigations, said her client made a simple mistake. “The point is, Julie’s a victim of circumstances in this case. She mistakenly made an innocuous remark to somebody who already had information about the merger,” Clarence said. “It’s a mistake.” U.S. District Judge William Alsup accepted Mesplou’s guilty plea of making a false statement to the SEC. He could face five years in prison, although a significantly lower sentence is expected. “It’s not an insider trading case,” said Mesplou’s attorney, Keker & Van Nest partner Elliot Peters. “He didn’t trade on inside information.” Mesplou admitted that he talked with Freese about Cobalt Networks on Sept. 17. The next day he purchased $1.2 million in Cobalt options and stock. Peters said it was the third time Mesplou had taken a position in the company. The merger was announced the day after his purchases. Mesplou then sold his stock, clearing $412,000. The next month, the SEC came calling. “I was contacted by the SEC and asked whether I had heard any information about the Sun/Cobalt merger and I said that I had not,” Mesplou told Alsup. Leslie Caldwell, the assistant U.S. Attorney handling the criminal case, told Alsup that Mesplou characterized his one-day profit as “a lucky turn of events.” Brobeck chairman Tower Snow Jr. said an associate — whom he declined to name — told a Brobeck partner in January that she had been approached by a government representative investigating an insider trade. Brobeck immediately put her on administrative leave and she subsequently resigned from the firm. “I have sympathy for the individual,” Snow said. But he added that resigning was “the professional thing to do.” “We are absolutely intolerant of intentional or inadvertent disclosure of nonpublic information,” Snow said. Freese was photographed for a January article about young Bay Area corporate associates in The American Lawyer, “Still Golden”. Robert Mitchell in the SEC’s San Francisco office would not comment on Freese’s responsibility in the case. “We’re not going to comment on people who have not been charged,” Mitchell said. Every year Brobeck lawyers must sign a certification declaring that they are knowledgeable of and in compliance with firm policy prohibiting discussion of confidential client information. Snow said every deal is given a code name and only attorneys working on a transaction know that it’s underway. Government attorneys did not identify the associate in their cases. The indictment against Mesplou was unsealed Tuesday. Both cases state only that Mesplou and the associate “met socially.” It was apparently their second meeting, the first having come two weeks prior. The two later developed a relationship, according to an attorney familiar with the case. Both defense attorneys downplayed the significance of the case. “I don’t think that the U.S. Attorney could prove an insider trading case here,” Clarence said. Helane Morrison, head of the SEC office in San Francisco, touted the case as another signal that the SEC is paying attention to Silicon Valley. “We’re trying to keep our eye on whether people in Silicon Valley are engaged in insider trading,” Morrison said. “Also, I think the criminal case is very important to say that people can’t lie to the SEC.”

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