Melville Man Faces 20 Years in Prison For Insider Trading: U.S. Attorney

A Melville man faces up to 20 years in prison after he was tipped off on a business merger in 2010 and used this information to fraudulently enrich himself, according to the U.S. Attorney’s Office of Eastern New York.

Tibor Klein, 43, of Melville, was indicted Wednesday, Aug. 10 in Federal Court in Central Islip on securities fraud and securities fraud conspiracy charges.

According to the U.S. Attorney’s Office, Klein, the founder and president of investment advisory firm Klein Financial Services, was tipped off by Robert Schulman, 58, of McLean, VA, about a pending merger between two companies.

Schulman, a former partner in a Richmond-based global law firm, allegedly told Klein about the merger between Pfizer, Inc. and King Pharmaceuticals, Inc. ahead of the merger announcement. Klein used that information to engage in securities transactions ahead of the merger announcement, the USAO says.

Schulman learned about this merger through King, a pharmaceutical company based in Bristol, TN, who he began representing in May 2009, the USAO says.

U.S. Attorney Robert L. Capers said, “Schulman, an attorney, violated the trust and confidence of his client for personal gain by passing along his client’s sensitive and economically valuable information to Klein, his investment advisor, and Klein exacerbated this crime by using the fraudulently-obtained information to trade in a number of his clients’ accounts.”

Between July 12, 2010 and Aug. 4, 2010, Schulman allegedly became aware of the pending merger between King and Pfizer. On the weekend of Aug. 13, 2010, Klein traveled to Schulman’s residence in Virginia to discuss Schulman’s investment portfolio and learned about the merger, the USAO says.

The following Monday, Aug. 16, 2010, Klein began purchasing more than $585,000 of King stock for himself, Schulman, and other clients of Klein Financial over the next month, the USAO says. He also informed a registered broker in Florida that he had obtained inside information regarding the King-Pfizer merger and directed the broker to purchase King stock and call options and between Aug. 16-23, 2010, the USAO says.

On Oct. 12, 2010, Pfizer’s acquisition of King was publicly announced and Klein allegedly sold all of the King shares he had acquired on that same day, generating a profit of more than $300,000 for himself, Schulman, and Klein Financial clients. The USAO says the broker, at Klein’s direction, also exercised all of the unexpired call options and sold all of the King stock the broker had purchased, generating a profit of more than $100,000, which the broker split with Klein.

“These individuals allegedly used proprietary information available solely through their trusted positions for an unfair advantage in the financial market to satisfy their appetite for money,” Philip R. Bartlett, Inspector-in-Charge, said.

Both Klein and Schulman each face a maximum sentence of 2o years in prison if convicted of the top charge.