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The office of U.S. Attorney Paul Fishman, who is pictured above, announced on Wednesday in a news release charges brought against two men, including a Wall Street stock broker from Colts Neck, in a $5.6 million insider-trading scheme.
(John O'Boyle/The Star-Ledger)
The alleged inside traders would meet at coffee shops in Manhattan, where one of them would quietly type the names of soon-to-merge companies into the other's cellphone, authorities say.
The man with the cellphone — called the "middle man" by authorities — would later walk through the teeming crowds of Grand Central Terminal, where he would position himself near the giant clock in the station's center. A third conspirator, a New York stockbroker, would approach and the middle man would flash a napkin or Post-it note with the company's ticker symbol on it in front of his eyes, authorities said.
Still standing in what is thought to be the world's busiest train terminal, the middle man would then slip the paper into his mouth and chew it, sometimes "eating it" to destroy the evidence, authorities say.
Yesterday, U.S. Attorney Paul Fishman and other officials announced the takedown of a brazen, four-year insider-trading scheme that netted $5.6 million through investments of $33 million in companies that planned lucrative mergers and acquisitions.
Two men were arrested and charged in a complaint unsealed in federal court in Newark: Steven Metro, 40, of Katonah, N.Y., who allegedly used his position as managing clerk at the international law firm of Simpson Thacher & Bartlett to gain information about planned mergers or deals involving companies such as Sirius XM Radio, Smithtown Bancorp and Officemax; and the stock broker, Vladimir Eydelman, 42, of Colts Neck, who authorities say worked at the prominent New York investment houses of Oppenheimer & Co. and Morgan Stanley.
Metro and Eydelman have both been charged with one count of conspiracy to commit securities fraud and tender offer fraud. In addition, Metro is charged with nine counts of securities fraud; Eydelman is charged with eight counts of securities fraud; and each defendant is charged with four counts of tender offer fraud, authorities said.
The Securities and Exchange Commission's Market Abuse Unit, which prosecutors said was integral in helping to find and take down the alleged conspirators, also filed its own civil complaint against Metro and Eydelman.
The third person — the "middle man" in the insider trio who began the scheme in 2009 — was not named or charged. At some point during the fraud, he flipped for federal investigators and became a cooperating witness against his two criminal partners, Fishman said in a statement. The federal complaint indicated it is expected he will plead guilty to a charge in the future and ask for a reduced sentence based on his cooperation.
Prosecutors and the SEC said the middle man was friends with both Metro and Eydelman. In addition, they allege Metro used the computer system of Simpson Thacher's New York office to access information about forthcoming deals that appeared likely to raise the value of a company's stock.
The trio allegedly traded ahead of 13 planned corporate transactions, authorities said.
"These defendants are charged with using confidential information that Metro stole from his employer to reap huge illegal profits," Fishman said. "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."
Metro and Eydelman appeared in federal court in Newark yesterday before U.S. Magistrate Judge Madeline Cox Arleo. Standing in handcuffs and chains and looking tired, they quietly answered the judge's questions, acknowledging they understood the charges against them, which, upon a conviction, would carry maximum potential penalties of more than 100 years in prison.
Arleo released the two men on $1 million bonds each, secured by their properties. Eydelman's attorney declined comment after the hearing. Metro's attorney said the charges are allegations and nothing has been proven.
In a statement yesterday, Simpson Thacher, a law firm authorities called one of the preeminent merger and acquisition firms in the nation, said, "We have zero tolerance for such behavior and hold ourselves to the highest standards of professional and ethical conduct.
"We had no knowledge of either Mr. Metro's actions or the charges until this morning. We terminated his employment today and will continue to cooperate fully with the authorities," the statement said. "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."
Authorities said the unnamed middle man recorded discussions he had with Metro and Eydelman for the FBI. In one instance, authorities said, Eydelman complained about the chances he was taking and how hard it was to hide that their trades were based on inside information.
"It's a lot of risk," said Eydelman, according to the federal criminal 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?"