Two Goldman Sachs employees made more than $6.7 million through insider trading by enlisting an analyst who provided information on Wall Street deals and a forklift driver who leaked copies of a market-moving magazine, authorities said Tuesday.
Prosecutors called it one of the most extensive insider trading cases in decades, and it has no shortage of salacious details. The case includes allegations that the men tried to get strippers to coax stock tips from investment bankers who had inside knowledge of pending mergers and acquisitions.
“We’ve never seen before a case involving so many different attempts to obtain information illegally,” said Mark Schonfeld, regional director of the Securities and Exchange Commission, which brought civil charges against 13 people.
He said the case was discovered by regulators who noticed unusually high trading volume before a merger announcement. A closer look showed that a 63-year-old retired seamstress in Croatia — the aunt of one of the defendants — had made more than $2 million.
Schonfeld said she was “either the most successful investor in the history of Wall Street or something more nefarious had taken place.”
U.S. Attorney Michael J. Garcia told a news conference that the case shows that two of Wall Street’s most important firms had workers “who, motivated by greed, are willing to place their careers and their liberty in jeopardy.”
The FBI Tuesday arrested Eugene Plotkin, 26, of Manhattan, a Goldman Sachs Group Inc. analyst, and a friend from college, Stanislav Shpigelman, 23, of Brooklyn, an analyst at Merrill Lynch & Co. Inc.’s mergers and acquisitions division.
Both were held on $3 million bail after brief appearances in federal court. Once free on bail, Plotkin must submit to electronic monitoring while Shpigelman must follow an evening curfew.
Katherine Pringle, Shpigelman’s lawyer, declined to comment.
Martin Schmukler, Plotkin’s lawyer, said: “This fellow went to Harvard and graduated with honors. Up until today, he was considered a pretty good catch and hopefully when this case is over he’ll still be considered a good catch.”
It also arrested Juan Renteria, a 20-year-old Milwaukee resident accused of working as a forklift operator at Quad/Graphics Inc. so he could steal early copies of Business Week magazine before it was released to the public. It was not immediately clear who was representing Renteria. (BusinessWeek is a content partner of MSNBC.com.)
Garcia said the three men were part of a wide-ranging plot that included David Pajcin, a former Goldman Sachs analyst who is cooperating with the government.
Prosecutors said Plotkin introduced Pajcin to Shpigelman in November 2004 at a Russian day spa and sauna in lower Manhattan.
In exchange for information on six different pending mergers or acquisitions, Shpigelman received cash and promises of future payments based on a percentage of profits, according to a criminal complaint filed in U.S. District Court in Manhattan.
Plotkin and Pajcin, meanwhile, made at least $6.4 million trading off Shpigelman’s tips, Garcia said.
The pair also benefited from tips from Renteria about what was about to appear in Business Week’s “Inside Wall Street” column, Garcia said.
They allegedly placed classified ads to get Nickolaus Shuster and Renteria to work as forklift operators at Quad/Graphics Inc. of Hartford, Wis., one of four plants where the magazine was published. Shuster has already been charged with securities fraud in federal court in Manhattan.
The information from Shuster and Renteria enabled them to make at least $340,000 illegally by trading in about 20 different stocks just before the stocks received favorable mentions in the column, Garcia said.
The government said the insider trading conspiracy took on an international edge when Plotkin and Pajcin, 29, of Clifton, N.J., tried to open Swiss bank accounts and provided tips to people overseas, including at least two in Europe.
Schonfeld said the pair gave stock tips to Pajcin’s aunt in Croatia and an exotic dancer in New York they met at a gentleman’s club and tried to elicit dancers to get stock tips from investment bankers. Both women are facing civil SEC charges.
Plotkin and Pajcin and other co-conspirators not identified in the court papers also tried to find other sources of inside information by helping people get jobs at investment banks in the hopes they could get more tips, prosecutors said.
The criminal complaint alleged that Plotkin and Pajcin created a joint fund to hold their illegal gains and began tipping family and friends with the understanding that those receiving tips would kick back some of the money to the pair.
Merrill Lynch spokesman Mark Herr said the company was cooperating in the investigation.
“These allegations, if true, represent a serious breach of trust and a violation of Merrill Lynch’s fundamental principles. We do not tolerate or condone insider trading. This conduct victimizes our company and clients alike. It is outrageous, if it is true.”
Goldman Sachs spokesman Peter Rose said: “We have cooperated fully with the authorities at all times.”
In November, Pajcin was arrested and charged with conspiracy and securities fraud and is cooperating with the government, according to the complaint written by FBI Agent David Makol.
Makol said he believed Shpigelman was well informed about the illegality of trading stocks on inside information because his sister once asked him if a deal he told her about was public information.
“Yes, the offer is public. I would not be telling you, especially via e-mail, unless I wanted to chill with Martha in Connecticut for a little while,” Shpigelman allegedly wrote.
Makol said he believed it was a reference to the criminal prosecution of Martha Stewart, the style maven who served five months in prison after she was convicted of lying about a stock sale.
It was not immediately clear who would represent the defendants in court on conspiracy to commit insider trading charges that carry potential penalties of up to 10 years in prison.