Why Might A Wall Street Lawyer Tip Inside Info? SEC’s Answer: For Kickbacks

We went to law school a little while ago, but the memory of those three years at Harvard is burned into our mind. It was a great experience, but it also was incredibly hard work. All lawyers probably feel the same way.  Given that, why would some who have “made it” jeopardize everything? We certainly can ask Marc Dreier. And, according to charges filed today by the SEC, we also can ask Arthur J. Cutillo, an attorney in the New York office of international law firm Ropes & Gray, and his friend and fellow attorney, Jason Goldfarb. 

The SEC charged the lawyers with tipping inside information in exchange for kickbacks, and also charged six Wall Street traders and a proprietary trading firm, in an alleged $20 million insider trading scheme.
 
The SEC alleged that: Cutillo had access to confidential information about at least four major proposed corporate transactions in which his firm's clients participated. Through Goldfarb, Cutillo tipped this inside information to Zvi Goffer, a proprietary trader at New York-based firm Schottenfeld Group. Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm's proprietary accounts.
 
According to the SEC: Goffer was known as "the Octopussy" within the insider trading ring due to his reputation for having his arms in so many sources of inside information. Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. For example, prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled "you" and "me." After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half.
 
Of course, these still are only charges, and the lawyers (and other defendants) will have the opportunity to defend themselves. Still, the comment by Robert Khuzami, Director of the SEC's Division of Enforcement, about these charges is worth reading: "When Wall Street professionals or others exploit inside information for an illegal tip-and-trade binge, they undermine the level playing field that is fundamental to our capital markets. These defendants thought the rules that apply to all investors did not apply to them, but the one rule they cannot avoid is the rule of law. Now they face the prospect of financial penalties, industry bars, and even jail time for their indiscretions."