AMP Ameriprise Financial Inc

A former partner at law firm Hunton & Williams LLP and an investment adviser were arrested Wednesday and accused of participating in an insider-trading scheme ahead of a Pfizer Inc. acquisition.

Prosecutors say Robert Schulman, an intellectual property lawyer at Hunton & Williams, tipped off his investment adviser Tibor Klein in 2010 about a pending merger between Pfizer and King Pharmaceuticals Inc. Mr. Klein, 43, was president of the investment advisory firm Klein Financial Services.

Mr. Schulman, Mr. Klein and their co-conspirators allegedly traded in King securities ahead of the deal and reaped more than $400,000 in profits, according to a federal indictment unsealed Wednesday.

Both men were charged by the Brooklyn U.S. attorney's office with securities fraud and securities fraud conspiracy charges. Each faces a maximum sentence of 20 years in prison.

Mr. Klein was sued by the Securities and Exchange Commission in Miami federal court three years ago, where he was accused of the same alleged scheme. The other defendant in the SEC case, Michael Shechtman, a former Ameriprise Financial Inc. employee, pleaded guilty in 2014 to one count of conspiracy to commit securities fraud.

Mr. Schulman, 58, appeared in the SEC's allegations, but he wasn't sued at the time. The SEC case was put on hold in 2014 in order for the criminal investigation by Brooklyn federal prosecutors to proceed, according to court filings.

Lawyers for Mr. Schulman and Mr. Klein either didn't respond to requests for comment or couldn't be identified.

According to the government, Mr. Schulman found out about the pending Pfizer deal because he was representing King in separate litigation at the time.

In August 2010, Mr. Schulman and Mr. Klein met at Mr. Schulman's home in McLean, Va., to discuss Mr. Schulman's investment portfolio, the indictment said. During a meal that weekend, after several glasses of wine, Mr. Schulman blurted out to Mr. Klein, "It would be nice to be King for a day," according to the SEC. Prosecutors say Mr. Schulman revealed the pending merger between King and Pfizer at that dinner.

A few days later, Mr. Klein allegedly bought hundreds of King shares for himself and thousands more for his clients, including Mr. Schulman, for a total of $585,216.

Mr. Klein also worked with an unnamed co-conspirator who bought hundreds of call options for King, according to the government. The co-conspirator matches the description of Mr. Shechtman in the SEC complaint. Prosecutors say the co-conspirator made over $109,000 in profits and gave $28,000 to Mr. Klein.

Pfizer publicly announced its acquisition of King in October 2010. Mr. Klein then sold all the King shares he and his clients owned and reaped more than $319,000 in profits, according to the indictment. He allegedly made a personal profit of over $8,800, while Mr. Schulman made $15,500.

Christopher M. Matthews contributed to this article.

Write to Nicole Hong at nicole.hong@wsj.com

(END) Dow Jones Newswires

August 10, 2016 14:05 ET (18:05 GMT)

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