(Bloomberg) -- A Morgan Stanley broker and the managing clerk at the law firm Simpson Thacher & Bartlett LLP were arrested today for an insider-trading scheme that authorities said netted $5.6 million in illicit profit.
Steven Metro, 40, the managing clerk at Simpson Thacher in New York, was accused of stealing confidential data on 13 corporate transactions and tipping a middleman who passed it to the broker, Vladimir Eydelman, 42, according to an arrest complaint in U.S. court in Newark, New Jersey.
Eydelman traded from February 2009 through February 2013 for himself, family, friends and clients, according to the complaint. Metro stole data from Simpson Thachers computers and gave it to the middleman in bars and coffee shops in New York, according to the U.S. Securities and Exchange Commission, which sued the men.
Eydelman met the middleman near the large clock at Grand Central Terminal, showing him a Post-It note or napkin with the stock ticker symbol of the company to be acquired, the SEC said.
The middleman then chewed up, and sometimes ate (with Eydelman watching), the Post-It note or napkin to destroy evidence of the tip, according to the SEC complaint.
Eydelman began his illegal trading at Oppenheimer & Co., where he worked from March 2001 to September 2012, and continued it after joining Morgan Stanley, the U.S. said.
We were just informed of the arrest this morning and will cooperate fully with the authorities as they pursue this matter, said James Wiggins, a Morgan Stanley spokesman. Obviously we do not tolerate insider trading and will take appropriate action based on the facts. The individual has been placed on leave pending further review.
Eydelmans attorney William Silverman declined to comment on the charges. A spokeswoman with Simpson Thacher, Jennifer Nash, didnt immediately respond to voice-mail and e-mail seeking comment. Stefan Prelog, a spokesman for Oppenheimer, declined to comment on the case.
The middleman, who wasnt identified, cooperated with the FBI and recorded conversations with and Eydelman, the government said. In one meeting, Eydelman discussed his difficulties in masking how their trades were based on inside information, according to the FBI complaint.
Its a lot of risk, Eydelman said on Feb. 6, according to the complaint. I lost my ability to get on every street research note, now. Its hard to provide documentation for what youre doing. Why youre doing it.
In his meetings with the middleman, Metro would pass inside information by typing the names of companies involved in transactions on his mobile phone, according to the SEC. Metro pointed to the names or ticker symbols on his phone to tell the middleman which company was being bought or sold.
The men invested more than $33 million over four years to buy securities in 13 transactions, trading in companies including OfficeMax Inc. and Sirius XM Holdings Inc., authorities said.
Eydelman used proceeds of the scheme to buy a 2011 Maserati GranTurismo for $117,700, tens of thousands of dollars in jewelry and a house in Colts Neck, New Jersey, according to U.S. Attorney Paul Fishman.
Metro is charged with nine counts of securities fraud, Eydelman with eight counts of securities fraud and each with four counts of tender offer fraud.
Law firms are sanctuaries for the confidential treatment of client information, and this scheme victimized not only a law firm but also its corporate clients and ultimately the investors in those companies, Daniel Hawke, chief of the SEC Enforcement Divisions Market Abuse Unit, said in a statement.
In 2012, attorney Matthew Kluger was sentenced in Newark to 12 years in prison, the longest term ever imposed in an insider- trading case, for stealing corporate merger tips from four law firms over 17 years.
In another case, two Ropes & Gray LLP lawyers in New York went to prison for leaking tips to former Galleon Group LLC trader Zvi Goffer, who was also jailed, beginning in 2007.
The new cases are U.S. v. Metro, 14-mj-8079, and U.S. Securities and Exchange Commission v. Eydelman, U.S. District Court, District of New Jersey (Newark).