The New Law Journal by Mark Hamblett - December 11, 2009
Mr. Santarlas faces up to 25 years in prison, although it is unlikely he would receive that much. Mr. Santarlas said that he and a co-conspirator his defense lawyer confirmed was Mr. Cutillo got the information by "reviewing files, overhearing conversations and questioning unwitting associates" and then passed the information on to another lawyer outside the firm later revealed to be Jason Goldfarb, an associate with the personal injury firm Brecher Fishman Pasternak Walsh Tilker & Zeigler. Mr. Goldfarb in turn sent the information to broker-dealer Zvi Goffer, who was allegedly dubbed "Octopussy" by his confederates because his scheme reached into so many companies. It was Mr. Goffer who was allegedly caught on a wiretap telling Mr. Goldfarb that the trading of a conspicuous number of options in a stock was "a ticket right to [expletive] big house." Mr. Santarlas, of Hoboken, N.J., will have to forfeit $32,500 in ill-gotten gains when he is sentenced before Southern District Judge P. Kevin Castel.
He becomes the sixth defendant to have pleaded guilty pursuant to a cooperation agreement since the announcement of arrests in the Galleon hedge fund scandal in October and the 21st person arrested overall in a series of complaints that prosecutors estimate involve more than $40 million in illegal profits. The two companies Mr. Santarlas detailed in his guilty plea were 3Com Corp. and Axcan Pharma, Inc. "On August 7, 2007, confidential information passed on by me was used to buy 75,000 shares of 3Com," he said. The transactions were the acquisition of 3Com by Bain Capital Partners on Sept. 27, 2007, and the acquisition of Axcan by TPG Capital on Nov. 29, 2007. Mr. Santarlas declined comment yesterday as he left the courthouse at 500 Pearl St., but his attorney, Robert G. Stahl, of Stahl Farella, gave a brief statement. "Brien is a decent young man who made a series of errors and misjudgments and he is taking full responsibility," Mr. Stahl said.
Ropes & Gray issued a statement through a spokesman about Messrs. Santarlas and Cutillo, saying, "The actions of these two former associates represent an extreme breach of their duty of trust to our clients and the firm, as well as gross violations of our policies and civil and criminal law. We have been actively cooperating with authorities in their investigation of this matter."Mr. Santarlas left Ropes & Gray in September 2008. A civil suit filed by the Securities and Exchange Commission yesterday said that $20 million in profits were made on the 3Com and Axcan information. Assistant U.S. Attorneys Reed M. Brodsky, Andrew L. Fish and Marc Litt are handling the prosecution. Mark Hamblett can be reached at email@example.com.
For Immediate Release
December 10, 2009 United States Attorney's Office
Southern District of New York
Contact: (212) 637-2600
Attorney Pleads Guilty in Manhattan Federal Court to Involvement in Insider Trading Ring
PREET BHARARA, the United States Attorney for the Southern District of New York, and JOSEPH M. DEMAREST, JR., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation ("FBI"), announced that BRIEN SANTARLAS, a former attorney at Ropes & Gray LLP, pleaded guilty today to insider trading charges in Manhattan federal court. The charges against SANTARLAS arose out of an ongoing investigation of insider trading at hedge funds and stock trading firms which has already led to charges against 20 Wall Street professionals, five of whom have pleaded guilty and are cooperating with the government. According to the two-count Information filed against SANTARLAS, other documents in this case, and statements made during the guilty plea proceeding before United States Magistrate Judge ANDREW J. PECK:
From June 2007 through May 2008, SANTARLAS conspired with others to steal material, nonpublic information ("Inside Information") from the law firm of Ropes & Gray for the purpose of buying and selling securities. In violation of his duty of confidentiality to the law firm and its clients, as well as Ropes & Gray's written policies and procedures, SANTARLAS stole Inside Information about several mergers and acquisitions of public companies for which Ropes & Gray was providing legal services, prior to the public announcements of the deals. Specifically, SANTARLAS stole Inside Information about the acquisitions of 3Com Corporation and Axcan Pharma, Inc., and provided it to his coconspirators in exchange for thousands of dollars in cash payments. As a result of trading that was based on the Inside Information provided by SANTARLAS and his co-conspirators, other individuals collectively made millions of dollars in illegal profits.
SANTARLAS, 33, of Hoboken, New Jersey, pleaded guilty today to one count of conspiracy to commit securities fraud and one substantive count of securities fraud. The conspiracy charge carries a maximum sentence of five years in prison and a maximum fine of the greater of $250,000, or twice the gross gain or gross loss from the offense. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. Mr. BHARARA praised the work of the FBI and thanked the United States Securities and Exchange Commission for its assistance in the investigation. Mr. BHARARA also thanked Ropes & Gray for its cooperation and assistance in this matter. Assistant United States Attorneys ANDREW L. FISH, REED M. BRODSKY, and MARC LITT are in charge of the prosecution.
Galleon Management LP hedge fund's billionaire founder Rajaratnam and a score of traders and employees of some of America's best-known companies were criminally and civilly charged in October and November. U.S. prosecutors have described the investigation as the biggest-ever hedge fund insider trading case. Santarlas's lawyer, Robert Stahl, said his client is cooperating with the investigation. He confirmed that Santarlas had conspired with Arthur Cutillo, another former Ropes & Gray lawyer. "Brien is a decent young man who made a series of errors and misjudgments," Stahl told reporters after the proceeding. "He is taking full responsibility." Aside from Santarlas, five other defendants in the case have pleaded guilty to criminal charges and are cooperating with investigators, according to court records. Santarlas, who also faces civil charges by the U.S. Securities and Exchange Commission, was released on $200,000 bail. His sentencing was tentatively scheduled for June 1. He faces a possible maximum prison term of 20 years for securities fraud. Cutillo was charged in November with insider trading in the same sprawling investigation that covered New York firms and tech stock companies in California.
"The actions of these two former associates represent an extreme breach of their duty of trust to our clients and the firm, as well as gross violations of our policies and civil and criminal law," said Andy Brimmer, a spokesman for the law firm. "We have been actively cooperating with the authorities in their investigation of this matter." The law firm's client Bain Capital Partners LLC announced it planned to acquire 3Com on September 27, 2007; the deal, which would also have involved China's Huawei Technologies Co Ltd, was shot down by a U.S. government security panel, and 3Com is now being bought by Hewlett-Packard Co. Another client, TPG Capital LP, announced on November 29, 2007 that it was acquiring Axcan Pharma. U.S. prosecutors said Santarlas, Cutillo, and two other defendants, Jason Goldfarb and Zvi Goffer, executed and caused trades to be executed in the stocks of 3Com and Axcan before the public announcements. The SEC alleges that people Santarlas and Cutillo tipped who traded on these two deals made approximately $20 million in illegal profits.