Broker-Dealer Gets Three Years In Prison For Trading On Inside Information Stolen From Prominent Law Firm
Friday, September 30, 2016
TRENTON, N.J. – A broker-dealer was sentenced today to 36 months in prison for participating in a five-year insider trading scheme that relied on information stolen from an international law firm and yielded net profits of more than $5.6 million, U.S. Attorney Paul J. Fishman announced.
Vladimir Eydelman, 44, formerly of Colts Neck, New Jersey, previously pleaded guilty before U.S. District Judge Michael A. Shipp to an information charging him with one count of conspiracy to commit securities and tender offer fraud, one count of securities fraud, and one count of tender offer fraud. Judge Shipp imposed the sentence today in Trenton federal court.
According to documents filed in this case and statements made in court:
From 2009 to 2013, Eydelman, a broker-dealer employed first by Oppenheimer & Co. and most recently by Morgan Stanley, repeatedly traded on material nonpublic information provided to him by his brokerage client, Frank Tamayo, 43, of Brooklyn, New York, who, in turn, had obtained the inside information from his friend and former law school classmate, Steven Metro, 42, of Katonah, New York. Metro was the managing clerk of the New York office of Simpson Thacher & Bartlett LLP, one of the nation’s premier mergers and acquisitions firms.
The inside information divulged by Metro to Tamayo and, in turn, by Tamayo to Eydelman, related to corporate transactions, such as mergers and acquisitions or tender offers, in which the law firm represented a party or financial advisor to the transaction. As the law firm’s managing clerk, a litigation-related function, Metro did not personally work on most of the corporate transactions at issue. In most instances, Metro stole the inside information from the firm by scouring its computer system using search terms such as “merger agreement,” “bid letter,” “engagement letter,” “due diligence,” as well as client names and client-matter numbers.
After obtaining the information, Metro divulged it to Tamayo in person, usually meeting at a bar, coffee shop, or other location near their respective workplaces in midtown Manhattan. During such meetings, Metro provided Tamayo inside information pertaining to, among other things, the names and/or ticker symbols of the companies whose securities should be purchased, the general timing of the planned deals, and information related to how the deals would affect the issuers’ stock price once announced. Tamayo generally would write the security’s ticker symbol on a small piece of paper or napkin and commit to memory any pricing or timing information provided by Metro.
After Tamayo received the inside information from Metro, Tamayo would meet with Eydelman, usually at a location near Eydelman’s workplace, such as under the large clock in New York City’s Grand Central Terminal, where Tamayo would pass it on to Eydelman. Tamayo would show Eydelman the paper or napkin on which Tamayo had written the ticker symbol of the company whose securities should be purchased. After Eydelman memorized the ticker symbol, Tamayo then would place the paper or napkin into his mouth and chew it until it was destroyed.
After receiving the inside information provided by Metro, whom Eydelman knew as Tamayo’s source at a law firm, Eydelman purchased securities for himself, family members, friends, and clients, including Tamayo. Eydelman quickly sold the shares and covered any positions once the relevant deal was publicly announced and the stock price rose.
Throughout the course of the five-year scheme, Tamayo reinvested the approximately $7,000 in profits that Metro made on the first deal and updated Metro on the running balance of his profits from the insider trading scheme. As of October 2013, by which time the conspirators had traded ahead of at least 13 planned corporate transactions, Metro’s share of the profits had reached approximately $168,000. Metro sought to cash out his share of the accrued profits from the insider trading scheme, pressing Tamayo to “liberate some cash” during a meeting in January 2014. Eydelman paid approximately $7,000 in cash to Tamayo in February 2014, with the expectation that Tamayo would use the cash to compensate Metro for providing them inside information.
By exploiting the information that Metro had stolen from the law firm, Eydelman and conspirators Metro and Tamayo netted more than $5.6 million in illicit profits.
In addition to the prison term, Judge Shipp sentenced Eydelman to three years of supervised release, fined him $15,000, and ordered him to forfeit $1,236,657.13.
Metro and Tamayo have both pleaded guilty to their roles in the scheme. On Sept. 14, 2016 Metro was sentenced to 46 months in prison. On Sept. 21, 2016, Tamayo was sentenced to 12 months in prison.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Timothy Gallagher in Newark, for the investigation leading to today’s sentencing. He also thanked the U.S. Securities and Exchange Commission’s Market Abuse Unit, under the direction of Robert Cohen and Joseph Sansone.
The government is represented by Assistant U.S. Attorney Shirley U. Emehelu of the Special Prosecutions Division of the U.S. Attorney’s Office in Newark, and R. Joseph Gribko of the U.S. Attorney’s Office in Trenton, as well as Unit Acting Chief Barbara Ward and Assistant U.S. Attorney Jafer Aftab of the Office’s Asset Forfeiture and Money Laundering Unit.
These charges are part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorney’s offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
Defense counsel: Walter F. Timpone Esq. and John P. Leonard Esq., Morristown, New Jersey