A federal jury in Brooklyn convicted a former Hunton & Williams partner on Wednesday of insider trading charges of tipping off his financial adviser to his client King Pharmaceuticals’ then-pending $3.6 billion acquisition by Pfizer Inc.
Robert Schulman of McLean, Va., was convicted of securities fraud and conspiracy charges after a trial that began March 7.
Schulman had represented King Pharmaceuticals Inc. in a patent case against Purdue Pharma LP as a lawyer with Hunton & Williams, where he’d worked since 2000. He moved to Arent Fox as a partner in Washington, D.C. in 2013.
According to his indictment, which was unsealed in August, Schulman tipped off his investment adviser, Tibor Klein of Klein Financial Services in Valley Stream, N.Y., about the Pfizer takeover plan during a dinner in August 2010 after having learned of it from another Hunton lawyer.
In Vino Veritas?
During the dinner, which was part of an overnight weekend stay by Klein with Schulman and his wife to review their portfolio and socialize, Schulman had several glasses of wine and, intoxicated, “blurted out to Klein, ‘It would be nice to be King for a day,’” according to a September 2013 Securities and Exchange Commission civil complaint against Klein.
Schulman had “intended to imply that he was a ‘big shot’ who knew ‘some kind of information’ ” about King, the SEC alleged.
Klein traded on the information for Schulman, himself and other clients, reaping $428,000 in profits after the takeover was announced in October 2010, according to the indictment. Schulman made $15,500 on the trades and Klein made $36,800, including a surreptitious $28,000 share of profits made by a co-conspirator identified as Klein’s best friend on call options placed on King stock, prosecutors said.
Charges remain pending against Klein, with a Sept. 18 trial date set.
The co-conspirator, Michael Shechtman, pleaded guilty to securities fraud conspiracy in November 2014 and was ordered in May 2015 to forfeit $109,000, the amount prosecutors said he had gained from his trades. He hasn’t been sentenced.
Supreme Court Decision Applied
In February, the court said prosecutors could try to show that Schulman’s tip was intended as a gift, even though that wasn’t specifically alleged in the indictment. The decision was one of the first to construe a U.S. Supreme Court ruling made in December that confidential information given as a gift can trigger insider trading liability. Schulman had moved to preclude the government from pursuing the gift theory at trial.
The SEC case against Klein is on hold pending the outcome of the parallel criminal proceeding.
Schulman’s attorneys’ Christopher B. Mead, of London & Mead in Washington, and Jonathan S. Sack, of Morvillo Abramowitz Grand Iason & Anello in New York, didn’t were not available for comment. Post-trial defense motions are due April 14.
A spokesman for Arent Fox, in a statement, said that Schulman “is no longer a member” of the firm and has been on a leave of absence “to focus on personal matters.”
The case is U.S. v. Schulman, E.D.N.Y., No. 2:16-cr-00442, jury verdict March 15, 2017.