SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16939 / March 22, 2001
NEW YORK ATTORNEY AGREES TO PAY $50,000 TO SETTLE SEC COMPLAINT ARISING FROM 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 has agreed to settle a pending civil action against Robert C. Schuster, a White Plains attorney, who was charged by the SEC with securities fraud for attempting to bribe a paralegal at Skadden, Arps, Slate, Meagher & Flom to give him confidential information about upcoming mergers involving Skadden's clients. In its complaint, the SEC alleged that Schuster sought to profit by buying stock in the acquisition targets before public announcement of the merger.
Under the terms of the settlement, Schuster has consented, without admitting or denying the allegations of the complaint, to the entry of a permanent injunction enjoining him from future violations of the antifraud provisions of the securities laws and ordering Schuster to pay a civil penalty of $50,000.
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. 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."
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 purchased stock and stock options in the company that was the purported acquisition target.
After Schuster paid the paralegal $500 cash as an initial installment for the tip, the FBI arrested him and charged him with securities fraud, wire fraud and commercial bribery. 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 sought a permanent injunction and civil penalties against Schuster.http://www.sec.gov/litigation/litreleases/lr16939.htm