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Insider-Trading Ring Alleged

April 12, 2006|Walter Hamilton | Times Staff Writer

NEW YORK — Prosecutors say an exotic dancer, a retired seamstress and forklift operators were bit players in an elaborate scheme by three friends who allegedly used insider information about pending corporate deals to rack up more than $6.7 million in illegal profits.

The FBI on Tuesday arrested Stanislav Shpigelman, 23, a merger and acquisition analyst at Merrill Lynch & Co., and Eugene Plotkin, 26, a Harvard-educated fixed-income analyst at Goldman Sachs Group. The U.S. attorney's office and the Securities and Exchange Commission alleged that Shpigelman tipped off Plotkin and a former Goldman Sachs colleague, David Pajcin, 29, about pending corporate mergers in exchange for cash.

Pajcin was arrested during a related investigation last year and is cooperating with prosecutors.

Most recent insider trading cases have involved spur-of-the-moment decisions in which mid-level corporate executives tried to make a quick buck after learning of impending deals involving their own companies.

But prosecutors said Plotkin and Pajcin's alleged scheme stood out because it was so thoroughly planned, including the lengths to which they went to expand their trading ring.

Shpigelman passed on secret information about six deals, including Adidas-Salomon's plan to buy Reebok International Ltd. and Procter & Gamble Co.'s purchase of Gillette Co., authorities said.

Plotkin and Pajcin made about $6.4 million by trading on Shpigelman's tips, according to court records.

Authorities said that Plotkin and Pajcin also coaxed forklift operators at a Wisconsin printing plant to steal advance copies of Business Week magazine and disclose the stocks mentioned in an influential Wall Street column. With that information they traded in about 20 different stocks and earned $340,000, according to authorities.

To find people to steal copies of Business Week, the men placed online job listings, according to the SEC, and eventually persuaded a New Jersey man to move to Wisconsin, where he was hired at the printing plant.

To hide their tracks, the two men funneled trades through the accounts of friends and relatives, including Pajcin's aunt, a retired 63-year-old seamstress from Croatia who netted more than $2 million on one deal, according to prosecutors. She was promised about $36,000 for her participation, authorities said. In addition, Monika Vujovic, 23, an exotic dancer in New York, allegedly allowed Pajcin to use an account in her name to make stock trades. Vujovic was promised half the profit from her account, authorities said.

Plotkin and Pajcin also tried to recruit other exotic dancers in New York who could milk their Wall Street clientele for information about upcoming deals, according to the SEC.

"This is one of the most widespread and brazen insider-trading rings we've ever uncovered," said David Markowitz, assistant director of the SEC's New York office. "These very highly educated, very bright guys got together and said, 'This is how we're going to make our living.' "

Merrill Lynch, in a statement, said: "The allegations, if true, represent a serious breach of trust and violation of Merrill Lynch's fundamental principles." Goldman Sachs declined to comment.

If convicted, Plotkin faces a maximum of 70 years in prison, and Shpigelman faces 55 years.

The charges highlight the fact that insider trading, which garnered big headlines two decades ago with cases against Ivan Boesky and Michael Milken, has remained a steady presence in corporate America and particularly on Wall Street.

Of the SEC's 630 total cases last year, 50 involved insider trading.

"They don't get significant headlines, but they're out there," said John Sturc, a partner at law firm Gibson Dunn & Crutcher in Washington who helped prosecute Boesky while working for the SEC in the 1980s.

Some notable cases involve younger people who don't remember the insider-trading scandals that convulsed Wall Street decades ago, said Stephen Cutler, a former SEC enforcement chief who is now a partner at Wilmer Hale in Washington.

"There is a generational issue," Cutler said.

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