Increased Scrutiny
Hawke's group, founded in January 2010, seeks patterns, connections and relationships among traders and institutions. As a result of those efforts, law firms, consulting companies and other insiders have come under increased scrutiny.
The probe of Bauer and Kluger accelerated after FBI and Internal Revenue Service agents searched the middleman's home in Long Beach, N.Y., on March 8. Kluger and the unidentified middleman had known each other since at least 1987, and they worked together from that year until 1991, a year before Kluger enrolled at New York University School of Law, according to the SEC.
The middleman worked in 1991 with Kluger at a real estate company, and then with Bauer at Weiss, Peck & Greer, a venture capital firm. The middleman was once a registered trader and later worked in the mortgage loan business, according to the FBI.
Conspiracy, Fraud
The middleman wasn't charged, while Bauer and Kluger were accused of conspiracy to commit securities fraud, securities fraud, obstructing justice and conspiracy to commit money laundering. Both were ordered detained after court hearings.
Kluger furnished tips about deals and transactions, and Bauer "made substantial trades based on that information and then divided the profits with Kluger and the middleman," Fishman said yesterday. He said Bauer made more than $30 million, the middleman more than $875,000, and Kluger more than $500,000.
With his profits, Bauer bought a $6.65 million condominium in Manhattan, where he conducted his trading, and an $875,000 home in Boca Raton, Florida, the FBI said.
Assistant U.S. Attorney Matthew Beck said a fourth law firm also was involved. He cited the recordings in telling a judge that the government's evidence was "overwhelming."
U.S. agents seized a $20.5 million account controlled by Bauer, who told court officials that he had $70 million in assets, according to Beck.