The Securities and Exchange Commission today filed suit against an attorney who allegedly used inside information about future corporate mergers that he obtained while working for a prestigious New York law firm to make a profit of $616,000 for himself and others from stock investments.
The civil complaint, filed in U.S. District Court here by the SEC regional office, names Kenneth Rubinstein, 35, who until April 20 was an associate at Fried, Frank, Harris, Shriver & Jacobson, and his brother, Aaron, 31, an associate attorney in another firm.
It was the second major SEC insider case in recent months involving a top securities law firm. Carlo M. Florentino of Wachtell Lipton Rosen & Katz, who last year was the subject of an SEC probe for allegedly trading insider information, was recently the target both of federal and criminal indictments.
Both Florentino and the Rubinsteins allegedly used insider information concerning the same merger, involving Texasgulf Inc. Fried Frank was representing one side of the transaction and Wachtell Lipton the other.
The SEC charges that, after Kenneth Rubinstein learned that an attempt to acquire Texasgulf would be made, he and his brother purchased options to acquire Texasgulf stock, using the names of relatives. The profit from these transactions was $479,927, the SEC contends.
In addition to Texasgulf, the brothers allegedly used inside information supplied by Kenneth Rubinstein between 1979 and this year to purchase stock in Brookwood Health Services Inc., Ludlow Corp., Cenco Inc., Midwestern Fidelity Corp., ERC Corp. and INA Corp.
The SEC complaint spells out in detail several of the alleged transactions.
For example, Humana Inc. retained Fried Frank in 1981 to help it acquire Brookwood Health Services. According to the SEC, Kenneth Rubinstein bought 900 shares of Brookwood on March 5 at about $18 each in the name of his wife and her parents. The SEC also alleges that Kenneth Rubinstein mentioned the Brookwood deal on March 5 to his brother, who bought 1,000 shares at about $18 each through a broker-dealer in Minneapolis.
On March 9, Humana announced a tender offer for all of Brookwood's outstanding shares at $26.50 each. That day, according to the SEC, the brothers sold all their stock realizing a profit of $13,056.
The brothers, who were not available for comment today, both live in Westchester County. Kenneth Rubinstein's attorney, Theodore Altman, refused comment.
In April, when the SEC probe of Kenneth Rubinstein was disclosed by Fried Frank, the firm said that it had a long-time policy prohibiting members from trading in stocks where they might have a conflict of interest. The SEC complaint notes this and says that all the clients in question were listed on a "conflict memorandum" circulated among employes.
"This guy simply violated it," said Leonard Chazen, a partner.
Peter H. Morrison, Aaron Rubinstein's attorney, read a prepared statement saying that his client had cooperated with the SEC and denied any wrong doing. "There is a difference between the brothers," he said.
Aaron Rubinstein's firm, which was not named in the SEC complaint, is Kaye, Scholer, Fierman, Hays & Handler. It is an important law firm that also does a significant amount of merger and acquisition work.
Fred N. Fishman, chairman of the executive committee of the firm, read a prepared statement saying that the firm was not involved, that it had cooperated with the SEC, and that Rubinstein was granted a leave of absence.