The men made about $16,000 each from J&J's acquisition of Mitek Surgical Products Inc., he said. Kluger stayed at Cravath after graduating cum laude from NYU. By 1995, the trio had their first big score when International Business Machines Corp. bought Lotus Development Corp. They split profits of about $213,000.
Kluger said that greed motivated his actions. He justified them to himself by saying that corporate executives "feathered their own nests" through insider trading and other methods, he said.
Rampant Insider Trading
"I knew insider trading was rampant," he said. "None of that makes it OK. You're asking how an otherwise honest and law-abiding person did something that was really, really bad. I'm greedy. I deluded myself into believing that what I was doing wasn't all that bad. I wasn't stealing from anybody, lots of people were doing it, and I was doing it on such a small scale as to not have a material impact on any markets or people."
Kluger said he met Bauer or spoke on the phone with him several times, even as each man took pains to avoid association with the other.
Bauer's profits began to grow, while Kluger said he personally never made more than $50,000 or $60,000 on any deal in those years. In court documents, prosecutors said the illicit profits were about $423,000 when J&J bought Cordis Corp. in November 1995. In 1997, the profits were $490,000 when NationsBank bought Barnett Banks Inc. in the largest banking acquisition ever at the time. Most of the money went to Bauer, Kluger said he learned later.
Leaked Information
Kluger left Cravath and worked for a few weeks at Milbank, Tweed, Hadley & McCloy LLP, another New York firm. The men later had their first run-in with investigators. An SEC lawyer called Kluger, asking about three transactions on which he had leaked inside information.
Regulators subpoenaed bank and phone records. Kluger hired a lawyer.
"I was ready to sell Robinson up the river, like he ultimately did to me," Kluger said.