Inside trader ()
The Securities and Exchange Commission and federal prosecutors in New Jersey have charged Steven Metro, a managing clerk at Simpson Thacher & Bartlett in New York, and Vladimir Eydelman, a Morgan Stanley stockbroker, with taking part in an insider-trading scheme that netted $5.6 million in illicit profits.
According to a 72-page civil complaint filed Wednesday by the SEC in Newark, Metro obtained nonpublic information on deals involving Simpson Thacher clients that he passed on to Eydelman through a mutual friend acting as the middleman.
The middleman, who is not named as he is cooperating with regulators, met Metro during in-person meetings at a Manhattan coffee shop and near the clock and information booth at Grand Central Terminal. The SEC claims Metro told the middleman about deals involving Simpson Thacher clients—such as Liberty Media’s $530 million investment in SiriusXM Radio in February 2009—and that the middleman would jot down on a napkin or Post-It note the ticker symbol of the stock to be purchased. He would then pass the note on to Eydelman. The SEC claims that evidence was later swallowed or chewed up and spat out and destroyed by the middleman.
According to a 24-page criminal complaint by the U.S. Attorney’s Office for the District of New Jersey, both the middleman and Metro met in 1995 as first-year classmates at the Touro College of Law in Central Islip, N.Y. Metro, who obtained a law degree but never practiced as an attorney, joined Simpson Thacher in 1999 and filed pleadings on behalf of lawyers at the firm.
Eydelman allegedly traded on the inside information and kicked back a portion of the proceeds to Metro, who used the middleman to invest them for him. Prosecutors in the office of U.S. Attorney Paul Fishman claim the scheme resulted in more than $33 million in illegal trades by Eydelman on behalf of himself, family members and clients. The criminal complaint outlines 13 deals—all but one of which were completed—involving Simpson Thacher clients on which Metro allegedly disclosed inside information.
The scheme began when Simpson Thacher helped SiriusXM avoid bankruptcy in early 2009 by securing an investment from John Malone’s Liberty Media.
Other deals in which Metro and Eydelman are accused of conspiring to trade in advance of their public disclosure include Simpson Thacher’s representation of People’s United Financial on its $60 million buy of Smithtown Bancorp in July 2010; Toshiba Medical Systems on its $273 million acquisition of Vital Images in April 2011; Arch Coal on its $3.4 billion purchase of International Coal Group from distressed investor Wilbur Ross in May 2011; and Office Depot on its $1.2 billion all-stock merger with rival OfficeMax in February 2013.
Simpson Thacher’s private equity clients also saw several large deals by some of their current and former portfolio companies get caught up in the insider-trading scheme.
Such transactions include advising private equity firm The Blackstone Group on its $4.1 billion sale of portfolio company Graham Packaging in April 2011; private equity client Silver Lake’s $645 million acquisition of flash memory product manufacturer Smart Modular Technologies that same month; a private equity consortium’s $2 billion buy of Payless ShoeSource parent Collective Brands in May 2012; and buyout giant KKR on its $1.3 billion sale of mattress maker Sealy to Tempur-Pedic in September 2012.
“Right now it’s all been private equity, private equity . . . I think this year, it’s going to be a good year,” Metro said in a meeting recorded by the middleman on Jan. 28 of this year in which federal prosecutors claim he promised to provide tips of future M&A deals.
In a lengthy statement provided to The Am Law Daily by a Simpson Thacher spokeswoman via crisis communications firm Sard Verbinnnen, the firm said that it had no advance knowledge of Metro’s actions until Wednesday morning, upon which his employment was terminated.
“Today’s charges against a former clerical employee of the firm are deeply disturbing and unprecedented in our long history,” Simpson Thacher said. “This behavior is completely inconsistent with our values, our culture and the strict policies we have in place to protect client confidences. We have zero tolerance for such behavior and hold ourselves to the highest standards of professional and ethical conduct.”
Simpson Thacher said it plans to cooperate fully with law enforcement authorities and is vowing to examine its internal procedures.
“We have strong internal controls in place and will review our systems and procedures to determine if there are ways in which they could be further strengthened,” the firm notes in its statement. “Client confidentiality is of the utmost importance to Simpson Thacher and we are reinforcing that principle to all of our lawyers and administrative staff.”
Metro is a 40-year-old resident of Katonah, N.Y., where property records show he paid $610,000 for a home in 2006. He did not return an email message sent to his Simpson Thacher work account requesting comment on the criminal and civil charges against him.
However, his attorney, James Froccaro Jr. of Port Washington, N.Y., told The Am Law Daily that his client will be entering a plea of not guilty at a court hearing in Newark before U.S. Magistrate Judge Madeline Cox Arleo.
“We look forward to him being vindicated,” said Froccaro, who is representing Metro on the criminal insider-trading allegations along with his colleague Michael Rosen.
As for Eydelman, prosecutors claim the 42-year-old resident of Colts Neck, N.J., used some of the proceeds from his alleged crimes to purchase a home, expensive jewelry and a new 2011 Maserati Grand Turismo for $117,700.
William Silverman, a former federal prosecutor and current white-collar and government investigations partner with Greenberg Traurig in New York, is representing Eydelman in the SEC case. Silverman did not immediately respond to a request for comment about the charges against his client, who has been placed on leave by Morgan Stanley.
Fishman, a former partner at Friedman Kaplan Seiler & Adelman who has served as U.S. Attorney for the District of New Jersey since late 2009, is overseeing the criminal case against Metro and Eydelman. The matter is being prosecuted by assistant U.S. attorneys Shirley Emehelu and Joseph Gribko and Marion Percell.
Metro is facing nine counts of securities fraud and four counts of tender offer fraud, while Eydelman faces the same number of tender offer fraud charges and eight securities fraud charges.
“These defendants are charged with using confidential information that Metro stole from his employer to reap huge illegal profits,” Fishman said in a statement. “They allegedly rigged the system by exploiting sensitive information that was not available to other investors. This kind of activity undermines the integrity of our financial markets and weakens investor confidence.”
Daniel Hawke, chief of the SEC enforcement division’s market abuse unit, led the team investigating Metro and Eydelman along with co-deputy chief Robert Cohen, senior counsel Jason Burt and Carolyn Welshhans, and associate director Antonia Chion. Assistant chief litigation counsel Stephan Schlegelmilch and Bridget Fitzpatrick will prosecute the civil case against both defendants.
@|Brian Baxter is a reporter for AmLaw Daily, a Law Journal affiliate. He can be reached at email@example.com