Regulation And Legislation

Morgan Stanley broker charged in $5.6M insider trading plot

Elaborate scheme allegedly included destroying evidence by eating Post-It notes beneath the clock at Grand Central Terminal

A Morgan Stanley broker and a law firm employee were charged with insider trading in a scheme that included passing tips on notes and napkins that a middleman swallowed under the big clock in Grand Central Terminal.

Steven Metro, 40, the managing clerk at Simpson Thacher & Bartlett LLP in New York, was accused of stealing confidential data on 13 corporate transactions and tipping a friend who passed it to broker Vladimir Eydelman, 42, according to an arrest complaint in filed in U.S. District Court in Newark, N.J.

Mr. Metro stole data from Simpson Thacher’s computers and gave it to the middleman in New York bars and coffee shops, according to the Securities and Exchange Commission, which also sued the men. Mr. Eydelman traded between February 2009 and February 2013 for himself, family, friends and clients, in a scheme that made $5.6 million in illicit profit, prosecutors said.

In his meetings with the middleman, Mr. Metro would pass inside information by typing the names of companies involved in transactions on his mobile phone, according to the SEC. Mr. Metro pointed to the names or ticker symbols on his phone to tell the middleman which company was being bought or sold.

Mr. Eydelman would meet the middleman near the large clock at Grand Central and show 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 Mr. Eydelman watching), the Post-It note or napkin to destroy evidence of the tip,” the agency said in its complaint.

The men today appeared in court, where a magistrate judge set bail of $1 million for each one.

TWO BROKERAGES

Mr. 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 FBI said.

Mr. Eydelman’s attorney, William Silverman, declined to comment on the charges. Mr. Metro’s attorney, Michael Rosen, said the charges are only allegations and his client is presumed innocent.

“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.”

An Oppenheimer spokesman, Stefan Prelog, said the company “strongly condemns any form of insider trading activity” and “will continue to cooperate with regulatory authorities in the investigation of these allegations.”

METRO FIRED

Simpson Thacher fired Mr. Metro today after learning of the charges, Brooke Gordon, a spokeswoman for Simpson Thacher with Sard Varbinnen & Co., wrote in an e-mail. The firm will review its systems and procedures.

“Client confidentiality is of the utmost importance to Simpson Thacher and we are reinforcing that principle to all of our lawyers and administrative staff,” she said.

The middleman, who wasn’t identified, cooperated with the FBI and recorded conversations with Mr. Metro and Mr. Eydelman, the government said. In one meeting, Mr. Eydelman discussed his difficulties in masking how their trades were based on inside information, according to the FBI complaint.

“It’s a lot of risk,” Mr. Eydelman said on Feb. 6, according to the complaint. “I lost my ability to get on every street research note, now. It’s hard to provide documentation for what you’re doing. Why you’re doing it.”

OFFICEMAX, SIRIUS

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.

Mr. 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, N.J., according to U.S. Attorney Paul Fishman.

Mr. Metro, of Katonah, N.Y., is charged with nine counts of securities fraud, Mr. Eydelman with eight counts of securities fraud and each with four counts of tender offer fraud. They were also charged with conspiracy to commit securities fraud and 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 Division’s 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 lawyers in New York went to prison for leaking tips to former Galleon Group trader Zvi Goffer, who was also jailed, beginning in 2007.

(Bloomberg News)