Two Wall Street insiders, one a broker at a big bank and the other a clerk at a prestigious law firm, were arrested and charged on Wednesday for an insider trading scheme that spanned nearly four years and involved more than a dozen corporate secrets.
Federal prosecutors in New Jersey and the Securities and Exchange Commission announced the case against Vladimir Eydelman and Steven Metro, claiming their scheme reaped about $5.6 million in illicit profits. Mr. Eydelman works at Morgan Stanley and Mr. Metro at the law firm Simpson Thacher & Bartlett.
A third participant in the scheme â€" and unnamed 40-year-old mutual friend who was described in court papers as the “middle man†â€" was not charged. Prosecutors characterized him as a “cooperating witness†in the case against Mr. Eydelman, his broker at Morgan Stanley, and Mr. Metro, an old friend from law school.
The criminal and civil complaints laid bare an elaborate, if somewhat old-fashioned, scheme. It began with Mr. Metro, who is accused of gleaning secret details of corporate deals from the internal computer system at Simpson Thacher, whose clients were involved in the deals. Mr. Metro, who earned a law degree but works as a clerk rather than a lawyer, leaked the details of the deals to the “middle man†during covert meetings at a New York City coffee shop, according to the government.
In a scene that seems ripped from a television drama, the middleman would then head to Grand Central Terminal’s signature four-faced clock, where he would relay the tips to Mr. Eydelman on a Post-it note or napkin. Mr. Eydelman â€" who, according to the government, used the tips to place well-timed trades on behalf of himself, family and other clients â€" would watch as the middle man “chewed up and sometimes even ate the note or napkin.â€
The case represents the latest chapter in the government’s crackdown on leaks flowing from trusted players, including lawyers and accountants, at the center of the deal-making universe. In a 2011 case that echoes the current one, the S.E.C. and prosecutors in New Jersey accused a lawyer of sharing corporate secrets with a trader in a scheme that netted more than $32 million.
“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 M. Hawke, the senior S.E.C. official who oversaw the case, said in a statement. “We are continuing to combat serial insider trading schemes, particularly by law firm employees and other professionals who are entrusted with extremely sensitive market-moving information.â€
Lawyers for Mr. Eydelman and Mr. Metro could not be immediately identified, suggesting that the case appeared to come as a surprise to both men. F.B.I. agents arrested Mr. Metro, 40, and Mr, Eydelman, 42, on Wednesday morning. They were expected to appear in court later on Wednesday.
In a statement, a Morgan Stanley spokesman said: “We were just informed of the arrest this morning and will cooperate fully with the authorities as they pursue this matter. Obviously, we do not tolerate insider trading and will take appropriate action based on the facts.â€
The bank, the spokesman said, placed Mr. Eydelman on leave “pending further review.â€
Simpson Thacher did not immediately respond to a request for comment.
The tips at the center of the case touched some of the firm’s biggest clients, a list that reads like a who’s who of corporate America. The deals, the government said, involved Sealy, Tyco and Office Depot.
“They allegedly rigged the system by exploiting sensitive information that was not available to other investors,†Paul Fishman, the United States attorney in New Jersey, said in a statement. “This kind of activity undermines the integrity of our financial markets and weakens investor confidence.â€
