Lawyer Convicted of Giving Tip on $3.6B Pfizer-King Deal

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By John Herzfeld

A lawyer who represented King Pharmaceuticals Inc. in a patent case was convicted March 15 on charges he tipped off his financial adviser to the company’s pending $3.6 billion acquisition by Pfizer Inc. ( United States v. Schulman , E.D.N.Y., No. 2:16-cr-00442, jury verdict 3/15/17 ).

A jury in the U.S. District Court for the Eastern District of New York found Robert Schulman of McLean, Va., guilty on securities fraud and conspiracy charges after a trial that began March 7. Schulman represented King in a patent case against Purdue Pharma LP as a lawyer with Hunton & Williams LLP, where he’d worked since 2000. He moved to Arent Fox LLP in Washington in 2013.

The district court’s ruling earlier this year in favor of the government on its theory of prosecution was one of the first to construe a recent U.S. Supreme Court opinion on insider trading liability.

In Vino Veritas?

An indictment unsealed in August charged Schulman with tipping off his investment adviser, Tibor Klein of Klein Financial Services in Valley Stream, N.Y., about the Pfizer takeover plan over dinner in August 2010 after having learned of it from another Hunton lawyer.

During the dinner, 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 “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, prosecutors said.

Charges remain pending against Klein, whose trial is slated to begin Sept. 18.

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 high court ruling 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.

Defense attorneys for Schulman didn’t respond March 16 to a request 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. He had been on a leave of absence “to focus on personal matters,” he said, adding: “As one of the country’s top general practice firms, Arent Fox is committed to exceeding the industry standards for ethical and professional conduct.”

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bna.com

To contact the editors responsible for this story: Phyllis Diamond at pdiamond@bna.com; Seth Stern at sstern@bna.com

For More Information

The indictment is at http://src.bna.com/m11. The February decision is at http://src.bna.com/m10. The SEC complaint is at http://src.bna.com/m2H.

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