U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16806 / November 20, 2000
SEC CHARGES NEW YORK ATTORNEY WITH SCHEME TO OBTAIN CONFIDENTIAL INFORMATION ON CORPORATE TAKEOVERS
Securities and Exchange Commission v. Robert C. Schuster, Civil Action No. 00 CIV. 8822
The Securities and Exchange Commission today charged Robert C. Schuster, a White Plains attorney, with securities fraud for attempting to bribe a paralegal at Skadden, Arps, Slate, Meagher & Flom to give him confidential information about upcoming mergers involving the firm's clients. Schuster sought to profit by buying stock in the acquisition targets before public announcement of the merger.
The paralegal refused, and reported Schuster's overtures to Skadden, who, in turn reported the matter to law enforcement authorities. With the cooperation of Skadden and the paralegal, the FBI conducted an investigation that included recording Schuster's subsequent conversations with the paralegal and resulted in the charges today.
Schuster is an attorney with a solo practice in White Plains. He was formerly an assistant district attorney in Cayuga County, New York. Skadden is a prominent New York based law firm that is known for specializing in representing large corporations involved in mergers and acquisitions. Skadden cooperated fully in the investigation. There is no evidence of any misconduct by Skadden or any of its employees, or of any compromise of the security of confidential information. Schuster had been representing the paralegal in connection with a personal legal matter when he learned that the paralegal worked at Skadden.
The Commission's complaint alleges that, in September of this year, Schuster offered the Skadden paralegal up to $15,000 to provide him with confidential information about upcoming mergers involving Skadden clients. In a subsequent meeting in October, which was recorded by the FBI, Schuster told the paralegal that they could "mutually benefit" from the confidential information because he would give the paralegal a "cut" of his profits. Schuster explained that "[t]he whole strategy has to be to know something before anyone else does." Schuster was aware that providing such information would violate the paralegal's confidentiality agreement with Skadden. Schuster repeatedly emphasized to the paralegal the need to keep his arrangement secret, to be "security conscious" and not to let others "catch any idea of what we might be working on."
On October 26, 2000, under the supervision of an FBI agent, the paralegal gave Schuster a fictitious tip - the name of a company that would purportedly be acquired and whose stock price would rise substantially when publicly announced. Schuster immediately bought 3,000 shares in the company for $153,750, nearly two-thirds of his entire brokerage account. Based on the fictitious tip, Schuster anticipated a profit of approximately $60,000. On November 16, 2000, Schuster paid the paralegal $500 cash as an initial installment for the tip.
The Commission charged Schuster with committing securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and is seeking a permanent injunction and civil penalties against Schuster. The Commission filed its complaint in U.S. District Court for the Southern District of New York. The U.S. Attorney's Office for the Southern District of New York today announced that Schuster has been arrested on related criminal charges.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the FBI in this investigation.