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Lawyer's record 12-year prison term for insider trading is upheld

By Jonathan Stempel

(Reuters) - A record 12-year prison sentence for insider trading given to a former lawyer in connection with a tipping scheme that stretched over 17 years was upheld on Tuesday by a federal appeals court.

Matthew Kluger, 52, had been sentenced in June 2012 for passing tips about corporate mergers that he learned about while working at four major U.S. law firms from 1994 to 2011, starting when he was a student at New York University's law school.

Prosecutors said the scheme generated more than $37 million of illegal profit, most of which went to Garrett Bauer, a New York trader. Bauer was sentenced to 9 years in prison, while a middleman, Kenneth Robinson, got 2-1/4 years in prison.

Kluger pleaded guilty in December 2011 to securities fraud, conspiracy and obstruction charges, but he said his sentence was too long, in part because his profit was only about $500,000.

The 3rd U.S. Circuit Court of Appeals in Philadelphia nonetheless found "good reason" for Kluger's sentence, even though it was "fairly severe" relative to Bauer's, and said the scheme could not have functioned without his tips.

"Kluger was an attorney who took an oath to uphold the law," Circuit Judge Morton Greenberg wrote for a three-judge panel.

"It is really quite remarkable that Kluger could not even wait to graduate from law school before using his employment at a law firm to initiate his illegal activities," he continued. "It is equally remarkable that during most of his legal career he was involved in criminal activity, so that in an actual though perhaps not in a legal technical sense ... he truly was a career criminal."

The four law firms were Cravath, Swaine & Moore; Skadden, Arps, Slate, Meagher & Flom; Fried, Frank, Shriver, Harris & Jacobson; and Wilson Sonsini Goodrich & Rosati. None was implicated in wrongdoing.

Kluger's sentence for insider trading exceeds the 11-year term given to Galleon Group hedge fund founder Raj Rajaratnam, and the 10-year sentence for former Galleon trader Zvi Goffer.

The 2nd U.S. Circuit Court of Appeals in New York upheld Rajaratnam's conviction on June 24, and Goffer's conviction and sentence on July 1.

Harvey Weissbard, a lawyer for Kluger, said he was disappointed in the 3rd Circuit decision and may appeal it.

"We continue to think his sentence was out of proportion to how much be profited," Weissbard said, referring to Kluger. "When you compare him to the big Wall Street people and the sentences they got in New York, it reinforces the impression that this was a particularly harsh sentence."

Kluger is serving his term at the same Butner, North Carolina, correctional complex as Bernard Madoff.

The case is U.S. v Kluger, 3rd U.S. Circuit Court of Appeals, No. 12-2701.

(Reporting by Jonathan Stempel in New York; Editing by Toni Reinhold)

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