The Securities and Exchange Commission (SEC) filed insider trading charges against a stock broker at Morgan Stanley (NYSE:MS) and a managing clerk at a law firm, Simpson Thacher & Bartlett in New York.

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According to the SEC, the insider trading charges were filed against Vladimir Eydelman, a stock broker at Morgan Stanley (NYSE:MS) and Steven Metro, a managing clerk at Simpson Thacher & Bartlett in connection with their illegal profits of $5.6 million for a period of four years from more than a dozen mergers and other corporate transactions

The United States Attorney’s Office for the District of New Jersey also filed criminal charges against Eydelman and Steven Metro.

Middleman passes inside information

The SEC cited that Eydelman and Metro had a mutual friend who acted as a middleman in the illegal trading scheme. Metro obtained material, non-public information about corporate clients involved in pending deals from the law firm’s computer system, and the middle man tips the information to Eydelman, who serves as his stockbroker.

Eydelman used the inside information passed the middleman to trade stocks on his behalf, family members, the middleman, and other customers. He then allocated a portion of his profits for Metro as a payment for the inside information. The SEC also cited that Metro also traded personally in advance of at least two corporate transactions.

Daniel Hawk, chief of the enforcement division market abuse unit at SEC said, “Law firms are sanctuaries for the confidential treatment of client information, and this scheme victimized not only a law firm but also its corporate clients and ultimately the investors in those companies. We are continuing to combat serial insider trading schemes, particularly by law firm employees and other professionals who are entrusted with extremely sensitive market-moving information.”

Authorities arrested Eydelman and Metro on Wednesday. Eydelman was charged with eight counts of securities fraud. Metro was charged with nine counts of securities fraud. Both were accused of four counts of tender offer fraud.

Morgan Stanley does not tolerate insider trading

A related report from Wall Street Journal indicated that Morgan Stanley (NYSE:MS) placed Eydelman on leave pending further review. Eydelman joined Morgan Stanley from Oppenheimer & Co. in September 2012.

According to the SEC, Eydelman and Metro’s insider trading scheme started in February 2009 until February 2013.

“We were just informed of the arrest this morning and will cooperate fully with the authorities as they pursue this matter. Obviously we don’t tolerate insider trading and will take appropriate action based on the facts,” said James Wiggins, spokesperson for Morgan Stanley (NYSE:MS).