06/04/2012 09:53 pm ET Updated Aug 04, 2012

Matthew Kluger, Lawyer, Sentenced To Record 12 Years For Insider Trading

NEW YORK, June 4 (Reuters) - A lawyer whose inside information the government alleged fueled a 17-year-long insider trading scheme was sentenced on Monday to 12 years in federal prison, the longest term ever meted out in an insider trading case.

The sentence of lawyer Matthew Kluger, who worked at some of the most prestigious law firms in the country, is one year longer than the 11-year sentence that Galleon Group hedge fund founder Raj Rajaratnam received last fall after he was found guilty on insider trading charges.

Kluger was sentenced by U.S. District Judge Katharine Hayden of Newark federal court. She also handed out a nine-year sentence to stock trader Garrett Bauer for his role in the scheme.

A third co-conspirator, Kenneth Robinson, is scheduled to be sentenced on Tuesday.

Attorneys for both Kluger and Bauer did not return calls seeking comment.

Federal prosecutors and securities regulators accused the trio of trading on inside information ahead of at least 11 corporate deals. They relied on merger secrets gathered by Kluger while he worked as a corporate attorney for prominent law firms, including Cravath Swaine & Moore; Skadden, Arps, Slate, Meagher & Flom; and Wilson Sonsini Goodrich & Rosati.

Robinson functioned as a middleman between Kluger and Bauer in an elaborate scheme that involved the use of public payphones and prepaid disposable cell phones in an attempt to hide their activities from law enforcement. Prosecutors said the men netted more than $37 million between 1994 and 2011.

"The severe sentences imposed today are a warning to anyone trying to game the financial markets for their own enrichment," said New Jersey U.S. Attorney Paul Fishman in a statement.

Earlier this spring, the three men reached a deal with the U.S. Securities and Exchange Commission that called for them to pay back their ill-gotten gains plus interest. Bauer agreed to pay $31.6 million, while Kluger will pay $516,000. Robinson settled for $845,000, an amount that regulators said reflected his willingness to aid authorities.

Both Bauer and Kluger pleaded guilty in December to one count each of conspiracy to commit securities fraud, securities fraud, conspiracy to commit money laundering and obstruction of justice. Robinson pleaded guilty in April 2011 to one count of conspiracy to commit securities fraud and two counts of securities fraud.

In one instance, Kluger tipped Robinson on Oracle Corp's impending acquisition of Sun Microsystems Inc in 2009. In another, the trio traded ahead of Intel Corp's takeover of McAfee Inc in 2010.

Bauer kept the majority of the proceeds, using some of the profits to buy a $6.65-million condominium on Manhattan's Upper East Side and an $875,000 home in Boca Raton, Florida.

The case is United States v. Bauer et al, U.S. District Court, District of New Jersey, 11-03536.