The Strange Case of the Paper-Napkin Conspiracy

By Pamela J. Bethel

Recently, we explained, in the context of white-collar crime, why e-mail is a dangerous tool to use, even when you are not guilty, and why one should never be too complacent about what prosecutors may be up to.

Here is another lesson: Even a seemingly unbreakable conspiracy can fall apart. All it takes is for one participant to “turn” in favor of the prosecution. And while prosecutors don’t always reveal the names of cooperating witnesses and certainly don’t explain why a witness has turned, it is not hard to imagine why an erstwhile co-conspirator can change his or her tune.

Last week, we read about a four-year scheme in which a Morgan Stanley stockbroker and a clerk at Simpson Thacher & Bartlett, a prestigious New York law firm, were charged with insider trading based on their advance knowledge of corporate mergers. The technique was unusual and unforgettable: A middleman with knowledge of the impending transactions would write down on napkins the names of companies that were involved in the deals, and then eat the napkins, thus destroying the evidence.  Then the broker would make trades on behalf of himself and the other conspirators.

The conspirators went so far as to send emails containing publicly available research about the companies they were investing in, thus creating an electronic paper trail that seemed to indicate that they were trading legitimately.

This seemingly impregnable conspiracy netted more than $5.6 million on at least 12 transactions, but it fell apart when the middleman started cooperating with the FBI last December. It didn’t take long for the conspiracy to unravel and for indictments to be handed down.

This is just another example of how white-collar criminals often try to stay one step ahead of the cops but fail in their efforts. There are certainly some criminal conspiracies that haven’t yet been uncovered, but whether it’s a matter of telltale emails or a telltale friend, we’d bet that many white-collar conspiracies are not going to stay secret for long.

Our advice: Stay clear of illegal or even suspicious-looking deals. If you see one near you, consult an attorney who knows how these things work.

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