Call it a cautionary tale for young corporate lawyers who might be inclined to discuss their work in what they think is an innocent fashion.
On Thursday, federal prosecutors in Manhattan charged two former stockbrokers, Thomas Conradt of Denver and David Weishaus of Baltimore, with running an insider trading scheme that yielded more than $1 million in illicit profits based on confidential information about International Business Machines's $1.2 billion acquisition of analytics software maker SPSS in 2009.
In addition to criminal charges filed by the Justice Department, Conradt and Weishaus also face civil charges brought by the SEC. The two worked together in the Manhattan office of Westport, Conn.–based broker-dealer Euro Pacific Capital and were also once law school classmates at the University of Baltimore. The Justice Department and SEC both state in court filings that the inside information the two men traded on originated with an attorney working on the IBM side of the SPSS acquisition.
The civil complaint states that IBM's outside law firm was retained to work on a potential deal for SPSS in January 2009, that IBM subsequently made a nonbinding offer to SPSS in April, and that the two companies entered into a "supplemental agreement" in late May.
While neither agency identifies either the name of the lawyer (the Justice Department calls him "Attorney-1" and the SEC uses the term "Associate") or firm in question, it was reported at the time that Armonk, N.Y.–based IBM had turned to a team of lawyers from Cravath, Swaine & Moore led by corporate partner Scott Barshay, a longtime M&A adviser to the company, for outside counsel on the matter. That reporting was based on information provided by the firm and contained in publicly available securities filings.
According to the complaints filed by the Justice Department and the SEC, the scheme allegedly hatched by Conradt and Weishaus began in May 2009 when the unnamed lawyer met an individual identified by federal prosecutors as "CC-3" and the SEC as the "Source" for what is variously described as brunch or lunch. The source, identified as an Australian citizen who worked as a research analyst at a major international financial services firm in Stamford, Conn., is described by the SEC as the associate's "closest friend in New York."
During the get-together in late May 2009, the lawyer, who had been at his firm for eight months and had just been assigned to work on the IBM–SPSS deal, discussed with his friend his new role on the looming transaction as part of a broader conversation about what working on such a major M&A deal might mean for his career at the firm.
It was not an uncommon exchange between the two—or one that the lawyer had any reason to think might lead to wrongdoing, according to the government's complaints against Conradt and Weishaus.
Indeed, the associate and the source "frequently shared both personal and professional confidences with one another and had a history of maintaining and not betraying those confidences," according to the SEC's civil complaint. "Based on their history, pattern, and practice of sharing confidences, each knew or reasonably should have known that the other expected such information to be maintained in confidence."
The SEC states that over the course of their friendship, the associate never revealed or traded on any confidential information that the source shared.
