Convicted inside trader Bauer warns others to “think harder” before breaking the law
By Emmanuel Olaoye
NEW YORK, (Thomson Reuters Accelus) - A former registered representative who was convicted last year of participating in a $37 million insider-trading scheme on Tuesday warned would-be securities law violators to think twice before breaking the law.
Garrett Bauer, a 44-year-old day trader, pled guilty in December to participating in the scheme, which lasted more than 15 years, as part of a three-man ring that included lawyer Matthew Kluger and middleman Kenneth Robinson.Bauer is on $4 million bail pending a May 1 sentencing date by a New Jersey federal judge. When asked for his advice to securities professionals thinking of inside trading, his message was simple: “Think a little bit harder before you act on everything. We are at $37 million now. It didn’t start that way in the beginning.”
Bauer said Kluger stole confidential information from his law firms on their clients’ pending corporate merger plans and passed the tips to Robinson, who in turn passed them on to Bauer.
Bauer, who has been in the securities industry since 1992, told students at Baruch College in Manhattan how he got involved in the scheme.
“Almost all these trades seemed very easy, but they turned out to be very complicated. I was really doing well in my career. I had no use for that money,” Bauer said.
Joining Bauer in his talk were his attorney, Michael F. Bachner, and Walter Pavlo Jr., who was convicted in 1997 of wire fraud and money laundering after he and two associates were caught embezzling some $6 million from their former employer, MCI Communications.
Bauer said he spoke to Robinson every day and would get inside tips from him roughly every six months, adding that not all of the trades made money.
“I got these phone calls every six months from Ken. I was always diverting capital to do those trades. It was more of a sense of relief when I got out of them,” Bauer said,
The case has highlighted the push by the Department of Justice, the Securities and Exchange Commission and Congress for more resources to catch inside traders and stiffer punishments when they are caught.
Probes by the SEC and federal prosecutors into insider trading have led to the convictions of corporate insiders and of traders and consultants for expert networks and hedge funds. A wide-ranging government investigation has resulted in almost 50 guilty pleas or convictions of Wall Street professionals, including Galleon Group hedge fund founder and billionaire Raj Rajaratnam, who was sentenced to 11 years in federal prison.
The authorities are aggressively pushing for longer sentences for insider trading than they have done in the past, Bachner said, adding that cases that were previously treated as a civil matter and settled by a fine are being referred for prosecution.
Bachner said the federal sentencing guidelines for insider trading frauds require consideration not only of the gain but also the harm caused. Under changes to the sentencing guidelines proposed in response to pressure from Congress for tougher sanctions against securities fraud, sentences for insider trading would increase.
“If Garrett was indicted in 1987 he would have been looking at a three-year sentence,” said Bachner, whose law practice focuses on white collar crime and litigation.
“We are in an era where things that were often treated as a civil wrong are being referred very quickly for criminal prosecution. If you are somebody that has a fiduciary duty to a client and you break it you are getting indicted. It doesn’t matter if you make money or lose money,” Bachner said.
EASIER THAN EVER TO GET CAUGHT
The case shows that the authorities and the exchanges are using technology to detect unusual transactions.
Compliance officers and trading supervisors can use the same tools to find suspected violations at their firms such as insider trading and market manipulation. Also, firms can train their audit staff in forensic technology to help uncover red flags in trading transactions.
Bauer said the scheme unraveled when he stopped trading, and Robinson, who was not a securities industry professional, started trading on the tips himself. The SEC’s detection software eventually picked up on unusual patterns in his trades. Robinson’s bankers also reported suspicious activities in his accounts, prosecutors said.
“The SEC looks for blips in the market. It’s fairly easy to catch,” said Bachner, who said insider trading schemes are usually uncovered through a combination of the detection technology and someone connected to the scheme confessing to the crime.
(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete (http://accelus.thomsonreuters.com/solut ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)