Garrett Bauer, a former independent day trader on Wall Street who pleaded guilty to insider trading in December, warned aspiring financiers Thursday to resist the temptation to cheat the system.
Bauer, who will be sentenced in March, spoke to a crowd of about 25 students Thursday night about his crimes and their repercussions in a talk sponsored by the Yale College Investment Group. He said he regrets acting on illegally obtained information, which has led the prosecution in his case to recommend a prison sentence between nine and 11 years.
“I’m really here hoping to prevent you from committing the same crime I did — insider trading — or really any crime in general,” he said. “There are catastrophic consequences, and practically everybody thinks it’s not going to happen to them. Hopefully, after hearing what I have to say, you’ll put that extra moment of thought into whatever you do before you do it.”
Bauer said before his arrest, he typically traded between $50 million and $100 million per day, reaching a total of $8 billion in 2010. Insider trading, he said, accounted for “well under” 1 percent of his total trading.
In describing the process that led to his crime, Bauer said he received tips about business deals from longtime friend Kenneth Robinson, a mortgage broker, and lawyer Matthew Kluger. All three are being charged for $37 million of illegally netted money.
The scheme was discovered after Bauer became more selective about which tips he used. Robinson — who had previously not generated large profits in his own personal trading account — then began acting on Kluger’s tips, Bauer said, and the Securities and Exchange Commission became suspicious of the spike in profits and investigated Robinson, who subsequently turned in himself, Bauer and Kluger.
He said his whole body “turned numb” when he realized that Robinson, his friend, must have turned him. While Bauer acknowledged that he was initially angry at Robinsion, he now accepts that “[Robinson] thought he was doing what was best for himself and his family at the time.”
In addition to insider trading, Bauer pleaded guilty to charges of money laundering and obstruction of justice.
He compared his experience after getting caught to a hurricane: it was devastating being arrested and brought to prison, and he expects the coming years “to be a lot more difficult,” but right now he is in the eye of the storm and has not completely processed the turn of events.
During the past few months, Bauer said, he has given many talks condemning insider trading. He said he also volunteers at a soup kitchen in New York, teaches English and math at an organization that serves homeless people and makes balloon animals for children with disabilities every Saturday afternoon.
According to Bauer, judges deliver large sentences for white-collar crimes in order to deter potential criminals, so he hopes that the judge will consider his efforts to discourage insider trading during his sentencing.
Despite the somber nature of his presentation, Bauer interspersed humor throughout the talk. He joked about being told that he is “lucky” because federal prisons — where he will serve his sentence — provide inmates with better food than state prisons.
Three attendees interviewed all said Bauer dispensed valuable advice for students considering a career in finance. Judy Zhang SOM ’12 praised Bauer for his candor, adding that although there are ethics classes at the School of Management, she feels that business students do not learn enough about these issues.
“This was the most powerful speech I’ve heard at Yale,” she said.
Sudharshan Mohanram ’13, investment manager for YSIG, said he thought Bauer showed great courage in telling his story, though he added that Bauer still comitted a “horrendous crime.”
Bauer grew up on Long Island and attended Clark University in Worcester, Mass.