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Guilty Plea in Law Firm Inside Trading Case from Napkin-Eating Middleman
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inside trading

Summary: Frank Tamayo, the middle man in an insider trading conspiracy including a Simpson Thacher employee pleaded guilty Friday.

The middle man in a five-year inside trading scheme pleaded guilty this Friday to receiving tips from an employee of Simpson Thacher & Bartlett LLP and passing them on to a broker-dealer, who gained $5.6 million in illegal profits through the enterprise.

  
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That middle man, Frank Tamayo, 41, pleaded guilty Friday in the U.S. District Court in Trenton before U.S. District Judge Michael A. Shipp to one count of conspiracy to commit securities and tender offer fraud, one count of securities fraud, and one count of tender offer fraud.

The insider-trading scheme drew his information from Simpson Thacher managing clerk Steven Metro – the two were friends from law school.

As Simpson Thacher specializes in mergers and acquisitions, Metro stole information regarding mergers from the firm’s computer system, using such keywords in his search as “merger agreement” and “engagement letter” to discover what companies would be merging, and ultimately how to play the stocks based on that information.

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They played this game from 2009 till 2013, bidding on such mergers as International Ltd.’s intent to buy Brink’s Home Security Holdings Inc. and 2013’s merger of OfficeMax Inc. and Office Depot Inc.

Metro would meet with his friend at various locations near trade-broker Vladimir Eydelman’s work place, such as the large clock on New York’s Grand Central Terminal.



Later, Tamayo would bring pieces of paper or napkins with the security’s ticker symbol, give it to Eydelman to memorize, and then chew on the napkin to destroy it.

Eydelman, 42, of Colts Neck, recently working for Morgan Stanley, would then buy securities for himself, family, and friends, and also Tamayo, earning a sum of millions over the years.

“We cannot comment except to say that on Friday Mr. Tamayo took the first step in the process of accepting full responsibility for his actions,” said Mr. Tamayo’s lawyer, as the Wall Street Journal blog wrote.

Tamayo could face a maximum of five years in prison and a $250,000 fine on his conspiracy count, and 20 years in prison and a $5 million fine on the securities and tender offer count. Sentencing will take place Dec. 23, 2014.

Simpson Thacher, meanwhile, made a statement in March claiming to have “strong internal controls in place” but would “determine if there are ways in which they could be further strengthened.” There has been a heightened concern for client privacy in law firms as of late.



 

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