April 28, 2014 — The securities fraud whistleblower program established in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act makes tipsters eligible for substantial rewards when they notify the Securities and Exchange Commission (SEC) about insider trading violations. Informants who tip off the government about trading on nonpublic information may receive an amount equivalent to thirty percent of the government’s recovery, provided the proceeds exceed $1 million.
Law Firm Clerk Allegedly Used Middleman to Tip Off Stockbroker to a Dozen Corporate Transactions in Advance of Public Announcement
A stockbroker and a managing clerk at a New York law firm have been charged with insider trading on nonpublic information concerning over a dozen corporate transactions. In four years, the two made $5.6 million in illegal profits.
The illicit trading operation, which reads like something out of a drugstore crime novel, allegedly involved three players:
- Vladimir Eydelman, the stockbroker first with Oppenheimer and now at Morgan Stanley;
- Steven Metro, the law firm clerk with Simpson Thacher & Bartlett; and
- the Middleman.
Metro and his friend, the Middleman, met for drinks one night in a bar. The Middleman was worried about his Sirius XM Radio shares, but Metro allegedly allayed his friend’s fears with some inside information that Liberty Media Corporation was about to invest over $500 million in Sirius. The Middleman called his stockbroker, Eydelman, and instructed him to buy more Sirius shares. After news of Liberty Media’s investment in Sirius went public, the Middleman was happy and the stockbroker saw an opportunity. The Middleman set aside $7,000 of his illicit proceeds from the insider trade as a reward for Metro. The law firm clerk, however, instructed the Middleman to invest the money on Metro’s behalf based on future insider information.
From there, the three established a secretive routine for passing along insider tips from Metro through the Middleman and ultimately to Eydelman, who allegedly conducted illicit trades based on tips concerning a dozen different companies. Metro would find the tips about his law firm’s corporate clients by tapping into confidential records kept in the firm’s computer files. Metro passed the tips to the Middleman during in-person meetings at a coffee shop. The Middleman would travel from the coffee shop to Grand Central terminal, where he would wait by the clock and information booth. When Eydelman, the stockbroker, arrived, the Middleman would show him a note paper or napkin on which was written the relevant ticker symbol. The Middleman then chewed up the note or napkin, sometimes swallowing it. Eydelman would use the illegal tips to make trades for himself, his family, his customers, and of course, the Middleman. Metro, meanwhile, would receive a portion of the Middleman’s profits in exchange for providing the nonpublic information.
Eydelman’s employer paid him significant commissions on the trades, as well as performance bonuses that were inflated because of the illegal profits. Metro was apportioned over $168,000 for his share of the Middleman’s profits. The SEC is seeking a full disgorgement of the ill-gotten gains from both Eydelman and Metro, along with prejudgment interest and penalties.
Whistleblowers Notify SEC about Insider Trading Operations
Before coming forward to notify the government about insider trading, informants need to familiarize themselves with their own rights under the Dodd-Frank whistleblower program. With qui tam lawyers in Dallas, Los Angeles and the Washington, D.C. area, Waters & Kraus remains steadfast in its commitment to protecting informants’ rights. Contact us by email or phone our whistleblower lawyers at 855.784.0268 to discuss how we can collaborate together to do the right thing.