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Lawyer sentenced to record 12 years for $37 million insider trading scheme

NEW YORK -- A former attorney who worked for some of the country's most prestigious law firms was sentenced on Monday to a record 12 years in jail for an insider trading scheme which lasted 17 years and netted more than $37 million between 1994 and 2011.

Matthew Kluger's sentence is the longest ever handed down in an insider trading case and is one year longer than the 11 year jail term imposed last year on Galleon Group hedge fund founder Raj Rajaratnam for insider trading charges.

Kluger was sentenced by U.S. District Judge Katharine Hayden of Newark federal court. Hayden also sentenced stock trader Garrett Bauer to nine years in jail for his role in the scheme and a third person, Kenneth Robinson, is scheduled to be sentenced on Tuesday. 

"At the end of the day, the judge agreed that these were extraordinarily serious crimes that betray people's trust in the stock market and were motivated purely by greed," U.S. Attorney Paul Fishman said.

The 51-year-old Kluger, of Oakton, Va., and former trader Bauer, 44, of New York, admitted last year they conspired with New York mortgage broker Robinson, who acted as the middleman.

Robinson, who pleaded guilty to his role in the scheme, was arrested in 2011 and secretly recorded conversations with the other men, including one in which Bauer discussed lighting $175,000 on fire to erase his fingerprints, according to court documents.

The three men used merger secrets gathered by Kluger while he worked as a corporate attorney for prominent law firms, including Cravath Swaine & Moore; Skadden, Arps, Slate, Meagher & Flom; and Wilson Sonsini Goodrich & Rosati. 

Kluger admitted passing advance information on company mergers to Robinson, who would give it to Bauer. The trio was estimated to have made $11 million on tech company Oracle's acquisition of Sun Microsystems.

Bauer kept the majority of the proceeds, using some of the profits to buy a $6.65-million condominium on Manhattan's Upper East Side and an $875,000 home in Boca Raton, Florida.  

Assistant U.S. Attorney Judith Germano told the judge that Kluger was the mastermind.

"He had wealth, intelligence and family support," she said. "He abused it all. Why? Because he could."

'Not like Gordon Gekko'
Defense Attorney Alan Zegas argued for a shorter sentence for Kluger and said that Bauer realized the lion's share of the profits while Kluger took only a small fraction of the total and was not aware of many trades that Bauer made on his own.

U.S. District Judge Katharine Hayden rejected Zegas' argument and said that every one of more than 30 insider trades made by Bauer was based on information provided by Kluger, whom she characterized as "amoral" and "thuggish." She compared the trio to drug dealers for the way they used throwaway cellphones and multiple ATM accounts to withdraw cash and exchange it in envelopes or bags.

Zegas said he would appeal the sentence.

Kluger, who said in remarks to the court that he was "deeply, deeply sorry," insisted afterward that the sentence was too harsh. Hedge fund billionaire Raj Rajaratnam was sentenced to 11 years in October after being convicted in the biggest insider trading case in U.S. history.

"I guess it's better to take $68 million and go to trial and be unwilling to accept responsibility for what you did," Kluger said, referring to Rajaratnam, who maintained that he traded only on publicly available information.

Defense attorney Michael Bachner attempted to persuade the judge to reduce Bauer's sentence by mentioning the numerous public speaking appearances Bauer has made since his arrest at business schools and law schools and the extensive work he has done with children's charities.

"He is not like Gordon Gekko," Bachner said, referring to the Michael Douglas character who said in the 1987 movie "Wall Street" that greed is good.

In contrast, Assistant U.S. Attorney Matthew Beck told the court, was the Bauer who upped his trading volume even after Securities and Exchange Commission regulators began probing his activities in 2007.

"That's a moment of self-reflection for anyone," Beck said. "That's not what they did. Garrett Bauer instead began increasing the size of his trades. This is hubris like you've never seen."

The Associated Press and Reuters contributed to this report.

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