Updated, 8:40 p.m. | Secret stock tips scribbled on Post-it notes and paper napkins. Illicit meetings held in broad daylight at Grand Central Terminal. Cover-up efforts that involved chewing, and even eating, damaging evidence.
These techniques, straight out of some dime store novel about Cold War operatives, were used by a three-man team to orchestrate an insider trading scheme, the authorities say. The three men — a broker at a big bank, a clerk at a prestigious law firm and a friend who served as their intermediary — employed the primitive cloak-and-dagger tactics over about five years to trade on more than a dozen corporate secrets.
But in the early morning hours on Wednesday, their plan fell apart. F.B.I. agents arrested the stockbroker, Vladimir Eydelman, and the clerk, Steven Metro. Regulators and federal prosecutors in New Jersey announced charges against the men, while characterizing the unnamed middleman as a “cooperating witness” in the case against his friends.
The government’s case laid bare a scheme that seemed oddly quaint — even naïvely brazen — for an era in which sophisticated techniques routinely conceal corporate crimes. Rather than devising computer formulas and complex trading strategies, these defendants communicated over landlines and their email accounts at work.
Even their profits were modest: $5.6 million in total. When dividing their profits last month, Mr. Eydelman stowed a handful of cash in a plastic shopping bag with a cigar manufacturer’s logo, remarking that the middleman should “put it to good use.” As for Mr. Metro, he reaped $168,000, a rounding error for the sort of insider trading cases that have swept through Wall Street in recent years.
Still, the charges on Wednesday highlighted an elaborate plan that struck a nerve with Wall Street banks and law firms. The defendants work at two firms synonymous with Wall Street’s button-down culture: Mr. Eydelman at a big bank, Morgan Stanley, and Mr. Metro at the law firm Simpson Thacher & Bartlett.
The case also represents the latest chapter in the government’s crackdown on leaks flowing from trusted players, including lawyers and accountants, who have a unique window into the deal-making universe. The government accused Mr. Metro of gleaning secret details of corporate deals from the internal computer system at Simpson Thacher, whose clients were involved in the deals.
The charges echo a 2011 case, when the Securities and Exchange Commission and prosecutors in New Jersey accused a deal lawyer of sharing corporate secrets with a trader. In both cases — filed by the S.E.C. and Paul Fishman, the United States attorney in New Jersey — the middleman happened to be a mortgage broker.
“Clients entrust sensitive market-moving information to law firms everyday with the expectation that it will be held in the strictest confidence,” said Daniel M. Hawke, the senior S.E.C. official who oversaw both cases.
Both men were released on bond on Wednesday. James Froccaro, a lawyer for Mr. Metro, said “he’ll be entering a plea of not guilty to all the charges and looks forward to being vindicated at trial.”
In a statement, a Morgan Stanley spokesman said: “We were just informed of the arrest this morning and will cooperate fully with the authorities as they pursue this matter. The bank, the spokesman said, placed Mr. Eydelman on leave “pending further review.”
Simpson Thacher fired Mr. Metro after the arrest. In a statement, Simpson Thacher called the charges “deeply disturbing.” The tips at the center of the case touched some of the firm’s biggest clients, including Tyco and Sirius XM Radio.
The plot began with a trade in Sirius’s shares in early 2009. At the time, Mr. Metro and the middleman, old friends from law school who kept in touch through regular visits to casinos in Atlantic City, met for drinks at a New York City bar.
The middleman, now a 40-year-old mortgage broker in Brooklyn, lamented the poor performance of Sirius XM’s stock. But Mr. Metro offered a reassuring tip: Liberty Media Corporation planned to invest over $500 million in Sirius.
Soon after, the middleman asked his stockbroker to double down on Sirius. The broker, a personal friend, was Mr. Eydelman.
Their success on that trade laid the groundwork for a more formal arrangement.
When armed with an inside tip, Mr. Metro would contact the middleman with a simple text message: “Do you want to meet for coffee?” They would get together at a New York coffee shop, where Mr. Metro would show his cellphone screen displaying the ticker symbol of the stock that should be bought.
The middleman would then head to Grand Central Terminal’s signature four-faced clock, where he would relay the stock to Mr. Eydelman on a Post-it note or napkin. Mr. Eydelman — who, according to the government, used the tips to place well-timed trades on behalf of himself, family and more than 50 other brokerage customers — would watch as the middleman “chewed up, and sometimes ate, the Post-it note or napkin.”
Mr. Eydelman would often return to his office to gather public research about the stock, which he then emailed to the middleman. When regulators questioned some well-timed trades by some of Mr. Eydelman’s customers, he cited that paper trail to fend off the inquiry.
But by last year, the scheme appeared to catch up with them. When the authorities approached the middleman, he agreed to record private conversations with his longtime friends.
The conversations, which underpin the government’s case, often involved Mr. Metro’s desire to “cash out,” or collect a cut of the profits. At the time, the government said, Mr. Metro needed help paying for the purchase of a home that the middleman was helping him buy.
During a conversation recorded in January, the government said, Mr. Metro pressed the middleman to “try to liberate some cash, somewhere, or I’m going to be” flat out.
The middleman in turn wanted to know when Mr. Metro might offer some additional tips.
“If anything comes up, I’ll let you know about it, for sure,” Mr. Metro said, according to the government. “I think this year, it’s going to be a good year.”