Tibor Klein, Securities Fraud, New York 2010

Grimy Times Exclusive: A two-count indictment was unsealed today in federal court in Central Islip, New York, charging Tibor Klein, the founder and president of investment advisory firm Klein Financial Services, with securities fraud and securities fraud conspiracy. Klein’s alleged accomplice, Robert Schulman, a former partner in a Richmond-based global law firm, is also facing charges.

The indictment alleges that Schulman tipped Klein about the pending merger between Pfizer, Inc. and King Pharmaceuticals, Inc. in 2010. Klein used this material non-public information to engage in securities transactions ahead of the merger announcement. The charges were announced by Robert L. Capers, United States Attorney for the Eastern District of New York, and Philip R. Bartlett, Inspector-in-Charge, United States Postal Inspection Service.

‘As alleged, Robert Schulman and Tibor Klein were licensed professionals who used their positions of trust to fraudulently enrich themselves,’ said United States Attorney Capers. ‘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.’

According to the indictment, in May 2009, Schulman began representing King Pharmaceuticals in a patent litigation in the Western District of Virginia. Between July 12, 2010 and August 4, 2010, Schulman learned of a pending merger between King and Pfizer through his representation of King. On August 13, 2010, Klein traveled to Schulman’s residence in McLean, Virginia, to discuss Schulman’s investment portfolio. During that trip, Schulman revealed to Klein that there was a pending merger between King and Pfizer.

The following Monday, August 16, 2010, Klein began purchasing King stock for himself, Schulman, and other clients of Klein Financial. Over the next month, Klein purchased more than $585,000 of King stock for himself and his clients. Klein 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.

Between August 16, 2010 and August 23, 2010, the registered broker purchased both King stock and call options. On October 12, 2010, Pfizer’s acquisition of King was publicly announced. The same day, Klein sold all of the King shares he had acquired and generated a profit of more than $300,000 for himself, Schulman, and Klein Financial clients. Also, on October 12, 2010, at Klein’s direction, the broker exercised all of the unexpired call options.

Klein will be arraigned later today before United States Magistrate Judge Gary Brown at the U.S. Courthouse in Central Islip, New York. Schulman’s initial appearance for removal proceedings to the Eastern District of New York is scheduled for this afternoon at the Albert V. Bryan U.S. Courthouse in Alexandria, Virginia.

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