Newspaper article International New York Times

Swallowing Evidence Fails to Prevent Arrest ; the U.S. Government Lays Bare an Elaborate Insider Trading Scheme

Newspaper article International New York Times

Swallowing Evidence Fails to Prevent Arrest ; the U.S. Government Lays Bare an Elaborate Insider Trading Scheme

Article excerpt

Two Wall Street insiders have been charged over an old-fashioned plan in which a middleman would relay tips at Grand Central Terminal in New York.

Secret stock tips scribbled on Post-it notes and paper napkins. Illicit meetings held in broad daylight at Grand Central Terminal in New York. Cover-up efforts that involved chewing, and even eating, damaging evidence.

These techniques, straight out of some dime-store novel about Cold War operatives, were used by a three-man team to orchestrate an insider trading scheme, the authorities say. The three men -- a broker at a big bank, a clerk at a prestigious law firm and a friend who served as their intermediary -- employed the primitive cloak- and-dagger tactics over about five years to trade on more than a dozen corporate secrets.

But in the early morning hours on Wednesday, their plan fell apart. F.B.I. agents arrested the stockbroker, Vladimir Eydelman, and the clerk, Steven Metro. Regulators and federal prosecutors in New Jersey announced charges against the men, while characterizing the unnamed middleman as a "cooperating witness" in the case against his friends.

The government's case laid bare a scheme that seemed oddly quaint -- even naively brazen -- for an era in which sophisticated techniques routinely conceal corporate crimes. Rather than devising computer formulas and complex trading strategies, these defendants communicated over landlines and their email accounts at work.

Even their profits were modest: $5.6 million in total. When dividing their profits last month, Mr. Eydelman stowed a handful of cash in a plastic shopping bag with a cigar manufacturer's logo, remarking that the middleman should "put it to good use." As for Mr. Metro, he reaped $168,000, a rounding error for the sort of insider trading cases that have swept through Wall Street in recent years.

Still, the charges highlighted an elaborate plan that struck a nerve with Wall Street banks and law firms. The defendants work at two firms synonymous with Wall Street's button-down culture: Mr. Eydelman at a big bank, Morgan Stanley, and Mr. Metro at the law firm Simpson Thacher & Bartlett.

The case also represents the latest chapter in the government's crackdown on leaks flowing from trusted players, including lawyers and accountants, who have a unique window into the deal-making universe. The government accused Mr. Metro of gleaning secret details of corporate deals from the internal computer system at Simpson Thacher, whose clients were involved in the deals.

The charges echo a 2011 case, when the Securities and Exchange Commission and prosecutors in New Jersey accused a deal lawyer of sharing corporate secrets with a trader. In both cases -- filed by the S.E.C. and Paul J. Fishman, the United States attorney in New Jersey -- the middleman happened to be a mortgage broker. …

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