The plan was simple. Kluger, 51, gleaned details of mergers at four of the six law firms where he worked. He discussed the most promising deals with Kenneth Robinson, a mortgage broker and old friend. Robinson then alerted his friend Garrett Bauer, a day trader who bought shares of companies in play. After the deals went public, Bauer sold the stock at a profit. Then Bauer withdrew $50 bills at automated teller machines and paid Robinson, who split it with Kluger. The arrangement worked 30 times between 1994 and 2011.
In the most lucrative one, Bauer bought 4.5 million shares of Sun Microsystems Inc. based on Kluger's tip that the company would be bought by Oracle. Bauer sold shares for an $11.4 million profit after the deal's announcement in April 2009.
All three men pleaded guilty last year in federal court in Newark, where prosecutors built the case. The government said it was one of the longest-running insider trading schemes ever, with Bauer making $32 million in illicit profit. Kluger, who made less than $1 million, was sentenced last month to 12 years in prison, the longest insider-trading term in U.S. history. By contrast, Raj Rajaratnam, the Galleon Group LLC co-founder convicted of masterminding a much bigger, more profitable insider-trading ring last year, received an 11-year sentence.
Nine Years
Bauer got nine years. He began serving his term this month at the Federal Prison Camp in Montgomery, Alabama. Robinson will serve 27 months, a reward for cooperating with authorities. Both Kluger and Bauer are appealing their sentences.
In the interviews, Kluger recounted why he broke the law and what steps the trio took to conceal the scheme. He discussed two earlier investigations by the U.S. Securities and Exchange Commission, and how he was prepared to give up Robinson in 1997. The scheme was addictive, Kluger said.
"There was an excitement on finding a deal that looked promising," Kluger said. "It was excitement and relief to get in on the stock and know the train wasn't leaving without you. There was an excitement on reading what the profits were. The final excitement was picking up a bag of cash."
Kluger stares intently with brown eyes and speaks in torrents of expressive words. He is 5-feet, 7-inches tall and has been bald since he was 20. His rise as a lawyer and downward spiral followed a troubled adolescence, an Ivy League education and nearly a decade in restaurant management and car sales before law school.
Pulitzer-Prize Winner
As an infant he lived for several months in a foster home in the Bronx, New York. He was adopted by Phyllis and Richard Kluger, a Pulitzer Prize-winning social historian. He attended ninth grade at the Kent School in Connecticut until being treated for a year in a psychiatric facility affiliated with Yale University. He said he received therapy for "adolescent adjustment issues" stemming from his adoption and homosexuality.
Kluger finished high school at the Hammonasset School in Connecticut and graduated in 1984 from Cornell University, where he studied hotel administration. After working in restaurants in Texas, he sold Toyotas in California, then moved to New York to work in residential real estate. For a few weeks in 1991, his co-worker was Robinson. The two remained friends.
Car Salesman
While selling cars in Roslyn, New York, Kluger decided to pursue a career as a lawyer. He started at Brooklyn Law School, then transferred to New York University. After his second year, he became a summer associate at Cravath, Swaine & Moore LLP, a prominent New York firm, assigned to mergers and acquisitions.