UPDATE (10/26/2015, 3:30 p.m.): The charges against Thomas Conradt, David Weishaus, and three other men have been dropped (as reported back in January by Reuters and Bloomberg). The dismissals come in the wake of the Second Circuit’s ruling in the Newman and Chiasson cases, which tightened up standards for criminal insider-trading liability. The Wall Street Journal editorial board recently opined that “the reality is that these were wrongful prosecutions. Mr. Bharara figured that with Wall Street so unpopular he could persuade juries to buy his elastic definition of insider trading. He owes his targets an apology, not a press-release apologia.”
Last week, federal prosecutors in Manhattan charged two former stockbrokers, Thomas Conradt and David Weishaus, with insider trading. There is a legal angle here (aside from the criminal charges and the civil case being brought by the SEC): Conradt is a lawyer, a member of the Maryland and Colorado bars, and Weishaus graduated from the University of Baltimore School of Law a year after Conradt.
To be honest, though, we’re not intensely interested in Conradt and Weishaus. Their alleged misdeeds occurred while they were working in finance, not law; the contours of Conradt’s legal career are somewhat unclear; and as for Weishaus, it’s not clear that he ever passed the bar or practiced as a lawyer.
As regular readers of Above the Law know, we have a weakness for prestige around these parts. So we’re far more interested in the former Cravath associate who, according to law enforcement allegations, made their misdeeds possible….
The Cravath connection was not immediately apparent in news coverage of the arrests of Conradt and Weishaus. For example, here’s what the Wall Street Journal wrote:
Two former brokers at Euro Pacific Capital Inc. were arrested Thursday and accused of trading ahead of a $1.2 billion acquisition by International Business Machines Corp. based on a tip from one broker’s roommate, allegedly referring to the deal among a circle of friends as “our horse.”
In a criminal indictment unsealed Thursday, federal prosecutors in Manhattan alleged that law-school classmates Thomas C. Conradt, 34 years old, and David Weishaus, 32, were among a group of friends who allegedly bought shares of analytics software firm SPSS Inc. ahead of its acquisition by IBM in 2009. Mr. Conradt’s roommate at the time allegedly learned of the acquisition from a lawyer working on the deal at a brunch in Manhattan in May 2009, according to the indictment.
While neither agency identifies either the name of the lawyer (the Justice Department calls him “Attorney-1” and the SEC uses the term “Associate”) or firm in question, The Am Law Daily reported at the time that Armonk, New York-based IBM had turned to a team of lawyers from Cravath, Swaine & Moore led by corporate partner Scott Barshay, a longtime M&A adviser to the company, for outside counsel on the matter. That reporting was based on information provided by the firm and contained in publicly available securities filings.
According to the complaints filed by the Justice Department and the SEC, the scheme allegedly hatched by Conradt and Weishaus began in May 2009 when the unnamed lawyer met an individual identified by federal prosecutors as “CC-3” and the SEC as the “Source” for what is variously described as brunch or lunch. The source, identified as an Australian citizen who worked as a research analyst at a major international financial services firm in Stamford, Connecticut, is described by the SEC as the associate’s “closest friend in New York.”
Here’s the account of the brunch from the criminal complaint (please note that these are just allegations and that “Attorney-1” has not been charged with anything):
Umm, you know what might negatively affect your professional standing at a New York law firm? This:
If you’re smart enough to get a job at Cravath, shouldn’t you be smart enough to know about the securities laws and insider trading? And to be vague about client and transaction details when complaining about work? Lawyers whine all the time about work-related issues without revealing confidential information. (Of course, one could also write a book on how lawyers often think they’ve adequately disguised client or deal details when in fact they haven’t.)
UPDATE (5:00 PM): Just to clarify, “Attorney-1” isn’t guilty of insider trading. All I’m saying here is that anyone with a general awareness of the securities laws would understand that disclosing material information about an anticipated transaction that has not yet been made public is unwise, especially when you happen to have such material information because you’re a lawyer working on the deal.
So who is the associate in question? Here is Am Law’s analysis:
The Justice Department and SEC filings offer few additional details about the associate, who is not accused of any wrongdoing, except that he is a citizen of New Zealand and transferred into the M&A group at the law firm advising IBM on the SSPS deal sometime in December 2008.
A comparison of the five Cravath associates and one summer associate identified in The Am Law Daily’s July 28, 2009, story as working on the deal against those listed in a Cravath press release issued the same day and available on the firm’s website reveals several discrepancies. Specifically, the Cravath press release includes two names not included in the original Am Law Daily report and omits one.
That missing associate, Mike Dallas, is identified on his LinkedIn profile as having strong ties to New Zealand. Dallas obtained a law degree in 2004 from the Victoria University of Wellington in New Zealand. From there, he went to work at Chapman Tripp, one of New Zealand’s largest law firms, before joining Cravath in September 2008 — about eight months prior to the May 2009 get-together that the government says details about IBM’s SPSS deal were shared.
Ah, New Zealand. From Kim Dotcom to controversial hotties, there’s always something interesting going on down under. One does wonder how a Kiwi cracked Cravath, considering how many U.S. law graduates the firm rejects for positions.
What happened to Dallas next? And what about the rest of the Cravath team that worked on the IBM/SPSS transaction?
According to Dallas’s LinkedIn page, he is now an in-house legal adviser at Spire Healthcare, the second-largest private hospital group in the U.K. The Am Law Daily emailed Dallas at Spire Healthcare and received an out-of-office reply stating that he was out on “annual leave” and would not be back at his desk in London until the morning of Monday, December 3.
Two other Cravath associates identified by the firm in its press release as working on IBM’s acquisition of SPSS, Daniel Birnhak and Mark Dundon, have joined Weil, Gotshal & Manges within the past year. Neither responded to requests for comment about the deal or the insider trading allegations tied to the transaction. Kelly Halpern-Skoglund, another Cravath associate who worked on the matter, joined Reed Smith in February 2010. She declined to comment.
Other Cravath associates that worked on the deal who remain with the firm include Jisoo Kim — the onetime summer associate — M.C. Tania Balthazaar, and Sophia Tawil. Barshay, the corporate partner who took the lead for Cravath on the transaction, did not respond to a request for comment, nor did tax specialist J. Leonard Teti II, the sole remaining associate to have also worked on the SPSS acquisition for IBM, and whom the firm announced in November was being promoted to partner.
Three Cravath spokeswomen also did not respond to requests for comment about the insider trading case, nor did presiding partner Evan Chesler, who was in Milwaukee on business Friday. The Justice Department does note that the unnamed New York law firm advising IBM “took various precautions” to keep the potential deal between both companies secret in order to prevent insider trading.
As Am Law points out, this is not Cravath’s first time at the insider-trading rodeo:
The case isn’t the first insider trading investigation to touch Cravath. Last year Matthew Kluger, a former Cravath associate who also once worked at Fried, Frank, Harris, Shriver & Jacobson, Skadden, Arps, Slate, Meagher & Flom, and Wilson Sonsini Goodrich & Rosati, was charged in connection with an insider trading probe that netted defendants roughly $37 million in illicit proceeds over more than a decade.
Kluger, who worked out of Cravath’s New York office from 1994 to 1997, pleaded guilty to the insider trading charges in December 2011 and was sentenced to 12 years in prison this past June, according to our previous reports. The sentence is the longest-ever handed down in an insider trading case.
The title of the American Lawyer piece has it right: the story is “a cautionary tale for young lawyers.” Cravath pays you quite nicely, with handsome base salaries and generous bonuses. That money should be able to buy a little discretion regarding client confidences.
Associate’s Failure to Keep Secrets a Cautionary Tale for Young Lawyers [Am Law Daily]
Insider Trading Pro Tip: IMing “i don’t want to go to jail” Won’t Make It Happen [Dealbreaker]
SEC v. Conradt [U.S. District Court for the Southern District of New York]
United States v. Conradt [U.S. District Court for the Southern District of New York]
‘Illegal Tipping’ Alleged on IBM Deal [Wall Street Journal]
Law School Classmates Arrested in Insider Trading Case [WSJ Law Blog]