Tip and Trade: How Two Lawyers Made Millions from Insider Trading

By Mark Coakley

The story of a friendship that started in law school and ended with the largest insider trading scandal in Canadian history, this eye-opening chronicle reveals for the first time how Gil Cornblum and Stan Grmovsek worked together to rip off Wall Street and Bay Street for over $10 million.

Cornblum would scout around his law offices in the middle of the night, looking for confidential information on mergers or takeovers. When he found something, he would tip off Grmovsek, who would make the stock market trades that would gain them illegal profits. From the joint investigation by the Ontario Securities Commission, the U.S. Securities and Exchange Commission, the Royal Canadian Mounted Police, and the FBI, to Cornblum’s resultant suicide and Grmovsek’s 39-month prison sentence, Tip and Trade covers the double lives of the twosome and their inevitable downfall.

First-person interviews, conducted with Grmovsek from prison, give insight into what case prosecutors called a classic “Hollywood” insider trading tragedy.

• Language: English
• Publisher: ECW Press
• Release date: Apr 1, 2011
• ISBN: 9781554909643

Book preview

To the law students of tomorrow

Stan Grmovsek

Gil Cornblum

Mark Coakley

Part One

Fall and Winter 2007

The double-minded man is unstable in all his ways.

James 1:8

1 | At the Peak

Gil I. Cornblum was a young corporate lawyer, and in the afternoon of October 23, 2007, he was at the peak of professional success.

Gil had spent almost two decades climbing the legal ladder — earning a combined law-MBA degree from Osgoode Hall Law School in 1994, then passing the bar exams, then moving to Manhattan to serve at the giant Wall Street firm of Sullivan & Cromwell, then coming home to run the Toronto office of another huge U.S.-based law firm, Dorsey & Whitney.

Gil was now 37. Around five foot five in height. Of Romanian descent, he had been born in the Israeli town of Ashkelon. His family had brought him to Canada as a young boy. Gil had thick, brown hair, which he wore parted on the right side. He had a naturally round face and was at this time slightly pudgy. His eyeglasses had large, round lenses that gave him a slightly owl-like appearance. He had thick eyebrows; big, sensitive-looking brown eyes; ears that stuck out. Gil smiled often but rarely openly enough to show his teeth.

A friend from his days at Sullivan & Cromwell would later describe Gil as a sweet soul, adding that he had been the only lawyer at that high-pressure megafirm who didn’t seem to have an axe to grind. He was nice to me — and that meant a lot. It was unusual.

Married since 2000, Gil now had a young son. His attractive wife had recently recovered from a rare, aggressive form of breast cancer.

Gil’s legal specialty was helping non-U.S. corporations sell their shares on U.S. stock exchanges — a complicated job in which a lawyer’s mistake could cost a client millions of dollars. You needed the concentration of a high-wire walker to take a deal to completion — and nobody did this work better than Gil. He was also a well-experienced expert in other kinds of cross-border corporate transactions, such as helping a Canadian corporation take over a U.S. one.

October 23, 2007, was the second of a two-day educational conference held in downtown Toronto, at the Four Seasons Yorkville hotel. It was called the Intensive Course in Securities Law and Practice.

Forty-five corporate lawyers from across North America gathered in a comfortable conference room to, as advertised, learn from leading securities lawyers at this intensive, hands-on and practical course.

Comply with the hierarchy of securities regulation

Best ways of managing contacts with securities regulators

Strategies for co-operating with Canadian, cross-border and international regulators: who to deal with and when

Learn how to minimize risk of secondary market liability

Effective tips on preparing an initial public offering and learn about special considerations for cross-border public offerings

. . . and more!

This course was the peak of Gil’s professional life; Gil was there not just to learn but also to teach. This was an honour, clear and public proof that he had been recognized by his peers as a leader of the profession and a role model for younger lawyers. He was one of the bright stars of the North American legal profession.

Gil had attended many events like this over the years, but this was only the third conference where he had been scheduled to stand up in front and lecture to other lawyers. The first time had been in 2005, at the International Finance Forum in Toronto, held by the International Association of Young Lawyers. Gil had lectured an audience of other young lawyers from around the world about Business Trusts in the United States. (Trusts are legal creatures similar to corporations.) The second time had been in 2006, in Toronto again, at an Osgoode Hall Law School Professional Development Program called U.S. Securities Law: What Canadian Practitioners Need to Know. Gil had lectured about Continuous Reporting for Foreign Private Issuers. (This had been about how non-U.S. corporations issuing shares in U.S. stock markets had to provide information to the U.S. government.)

The course leaders of the October 2007 conference were two lawyers, Mark Bennett and John Vettese, both of the Bay Street law firm Cassels Brock & Blackwell. Mark and Gil were good friends, and their respective law firms had a special relationship that profited them both.

Bay Street in Toronto, like Wall Street in New York, was a symbol of a nation’s elite financial system. Most law firms known as Bay Street firms were physically located on downtown Bay Street, but not all of them were; the label was based less on geography than on size, power, and prestige. Bay Street firms handled all the biggest corporate deals, paid eye-popping salaries, and often had well-connected ex-politicians working for them as rainmakers, helping to bring in those big deals.

The men and women preceding Gil at the podium were all Bay Street or Wall Street lawyers at the peak of the profession: Heather Zordel (of Cassels Brock & Blackwell), Charlie MacCready (of Heenan Blaikie), Steven Molo (of Wall Street’s Shearman & Sterling), Geoff Shaw (of Cassels Brock & Blackwell), Tom Swigerts (of Gil’s firm, Dorsey & Whitney), Brian Koscak (of Cassels Brock & Blackwell), Greg Hogan (of Cassels Brock & Blackwell), Philippe Tardif (of Borden Ladner Gervais), Lisa Damiani (of Davies Ward Phillips & Vineberg — we will encounter this firm again later), and Mark Gelowitz (of Osler, Hoskin & Harcourt). Gil was scheduled to be the second-last speaker, followed by Sean Farrell (of McMillan Binch Mendelsohn).

In light of later events, it is tempting to speculate about Gil’s thoughts as he sat through the lectures and PowerPoint presentations that preceded his own.

What did Gil think when Heather Zordel explained that the purpose of insider-trading restrictions was to ensure that everyone has equal access to material information on which to base trades or hold decisions and an equal opportunity to act?

Did Gil react when Charlie MacCready, lecturing on Canadian Securities Regulators, talked about how the government used market surveillance activities such as trading analysis to identify breaches of the trading rules, including illegal insider trading and patterns of trading manipulation?

Was Gil paying any attention when Steven Molo took the podium to talk about the U.S. White Collar Enforcement Environment, describing the growing intensity of the enforcement environment — more investigations, greater number of individuals prosecuted, larger fines, additional penalties? Did Gil hear Molo’s warning that in the United States corporate lawyers would now face a triple threat from the Department of Justice, the Securities and Enforcement Commission, and each state’s attorney general?

When Tim Swigert, another Dorsey & Whitney lawyer, spoke about Best Practices for Managing Investigations and Enforcement, did Gil hear his colleague describe the sophisticated surveillance systems to monitor all trading activity in real time? Swigert explained how an investigation could lead to a finding of guilt (in civil court) for stock market frauds such as insider trading or tipping. That finding could lead to penalties of up to $1 million per offence, plus repayment of illegal profits, plus payment of the costs of the investigation and trial, plus a criminal conviction and prison.

Was Gil listening at all?

° ° °

When it was his turn to walk to the front of the Four Seasons conference room to take the podium to speak, Gil stood in front of a screen showing his PowerPoint presentation. The first screen showed the title of his lecture: Overview of U.S. Securities Regulations Cross-Border Transactions.

Gil spoke knowledgeably about all of the various U.S. federal securities laws that regulated the U.S. stock markets, the most important being the Securities Exchange Act of 1934. It had been passed by President Franklin D. Roosevelt during the Great Depression in response to the Wall Street crash of 1929. The 1934 act made insider trading illegal in the United States for the first time. (Before Roosevelt’s presidency, insider trading in the United States was common and only mildly controversial; the Massachusetts Supreme Court would describe insider trading as a perk in the case of Goodwin v. Agassiz). The 1934 act also created the Securities and Enforcement Commission. Gil described the functions of the SEC, including its widely feared Division of Enforcement — responsible for market-fraud investigations, civil actions, and referrals to the FBI.

Gil also spoke to the crowd of 45 top corporate lawyers about other U.S. laws, such as the Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988. Like the prior lectures, his subject matter was too technical and complicated for most non-lawyers to understand. Lawyers trained in fields other than corporate law (like me, an ex-litigator) would also have found most of Gil’s lecture baffling.

So let’s get to the point.

The crime of tipping is when someone who works for a corporation steals information about it and gives the stolen information to an outsider, so that the outsider can make a profit or avoid a loss on a stock market.

The crime of insider trading is when someone who works for a corporation steals information about it and uses the secret information to make a profit or avoid a loss on a stock market.

By 2007, tipping and insider trading had been illegal in both the United States and Canada for decades, and the penalties had grown harsher and harsher over time. An inside trader who got caught could be punished in civil court (seizure of property) and/or criminal court (prison). As Martha Stewart showed, certain inside traders could also end up being judged by a third kind of court, the court of scandalized public opinion, with possibly the harshest punishments of all.

So we have met a young, successful lawyer named Gil Cornblum, who was at a conference in Toronto where other lawyers lectured to him about market fraud in general and insider trading in particular. We have watched Gil step up to the podium to speak to the assembled Bay Street and Wall Street lawyers on various topics, including U.S. insider-trading laws.

A detail is missing. The reader should know that Gil had more than a professional interest in stock market fraud. He had a big secret, shared with only one person. Nobody at the Intensive Course in Securities Law and Practice knew it. Nobody at Dorsey & Whitney, or at any other law firm, knew it. Nobody at his temple knew it. Gil’s parents, brother, and wife did not know it. Only Stan Grmovsek knew it.

Only Stanko Jose Grmovsek (pronounced "gur-mov-seck") understood the pressure and stress that attacked Gil every day. Stan was the only person in the universe who knew that Gil did not just lecture about insider trading — no, no, the truth was that Gil did it himself, on a massive scale. He had made between 100 and 150 illegal insider transactions over 14 years, both in the United States and in Canada, on both Wall Street and Bay Street. Again and again and again, he broke the lawyer’s oath of loyalty and integrity.

From his secret crimes, Gil had gained many millions of dollars. He kept most of his share of the loot in a bank in the Cayman Islands. It was not under his real name, of course; the account was registered to INM. Stan had picked the name for Gil’s secret bank account. The letters stood for I Need Money.

But that was not true — Gil did not really need these proceeds of crime. He earned about a million legitimate dollars a year as a partner at Dorsey & Whitney. He had a big house in one of Toronto’s best neighbourhoods and almost no mortgage. He had lots of savings, investments, many beautiful and valuable pieces of art.

And Gil knew that, if he lost all of his material wealth, his family would still love him; his family was the most important part of his life, the source of his greatest joys and anxieties.

Most of Gil’s illegal profits sat untouched, year after year, dwindling away in poorly picked, poorly managed investments. Gil spent little of his secret treasure. So why did he steal it?

° ° °

Sometimes Gil’s inside information was stolen from his own clients. Sometimes it was stolen from clients of other lawyers at his law firm. Gil was a snoop and a spy.

One technique — which he and Stan called spelunking— involved Gil wandering the halls of a firm, usually very early in the morning before anyone else arrived, looking for documents with clues about upcoming deals. Gil would find them on lawyers’ desks or secretaries’ desks or in the fax room or in the photocopy room or elsewhere. When he found an interesting document, he would often return on following nights to find newer documents showing how the deal was progressing.

A simple technique involved Gil engaging lawyers in conversations about their files, hoping that something would slip out. Gil would also eavesdrop on conversations between other lawyers. He overheard rival lawyers blabbing secrets in skyscraper elevators, during a fancy lunch near Wall Street, at a busy Starbucks near Bay Street, and elsewhere. Conflict checks— in which lawyers are asked if they have ever represented a certain client — could also reveal upcoming deals.

Another technique involved Gil logging on to a law firm’s computerized document management system. When he snooped in a computer system, he would sometimes leave behind electronic tracks.

Sometimes a law firm and its clients would use code names for pending transactions to keep news of the deal from the stock market. When Gil found information about a coded deal, he or Stan would investigate and research (often on the Internet) until they figured out who was in the deal and what it was all about.

After Gil tipped Stan on an upcoming deal, Stan would use the information for trades on the stock market in one of two ways. He would either buy shares in the company being taken over, knowing that its shares would rise after the deal’s announcement, or he would short the company doing the takeover — that is, bet that its share price would go down — knowing that this would likely be the reaction of the stock market after the announcement.

° ° °

Gil would later say about the start of his insider-trading career — when he was working for the giant Wall Street law firm Sullivan & Cromwell in the 1990s — that

generally, I learned about transactions from other lawyers in the M&A group or banking group who were working on transactions. . . . Generally, I had lunch and dinner with people at the firm, met people in the hall. I mean, when lawyers meet the first thing they talk about is what they’re working on, who they’re working for, whether that person is a good person to work with, what they’re working on, interesting, not interesting, exciting, not exciting, what type of work they’re doing, why someone is doing something exciting and someone isn’t. . . . I was interested in the transactions, but I wasn’t grilling them. . . . Well, you know, law firms are full of paper. People would leave, you know, documents on shelves outside their desks. I spent a lot of time in the fax room sending things through, receiving things. So I saw things there. I would see things in the room where people package documents to go at night. . . . I saw something there in the document preparation room, photocopy room. You see paper everywhere. I was naturally curious what it was.

At least once at Sullivan & Cromwell, Gil learned of a deal from other lawyers chit-chatting in an elevator.

Many of the deals at Sullivan & Cromwell had code names, but, as Gil would later say, Sometimes it was so obvious that, you know, research wasn’t needed. Gil and Stan shared the work of research whenever it was needed.

Gil was known for his odd habit of showing up at the Sullivan & Cromwell office early in the morning, earlier than 5:00 a.m. When he was asked about this, he would chortle and say that he liked to get in early so he did not have to stay late. The real reason why Gil often arrived so early at 125 Broad Street was so that he could roam the offices of Sullivan & Cromwell when they were deserted, spelunking and stealing information from clients.

Stan would later say, We had discussed that you could never work late enough in New York, there’s always someone working very late, but you can come very early because people like to sleep in. So I would call him in the morning at, say, 3:30 . . . to wake him up, and he would go to work, he would be at work by 4:15.

Gil did not like waking up so early, so Stan in Canada (who had erratic sleeping habits) had the task of phoning Gil in Manhattan for his wake-up calls. Rise and shine, Gil! Gil could have used his alarm clock, but he petulantly demanded wake-up calls so that he would not suffer alone. Since the profits were divided evenly, he argued, the waking-up early part should be shared evenly as well.

When spelunking from office to office at Sullivan & Cromwell, often on the 30th floor (general reception) or the 28th floor (mergers and acquisitions), Gil would usually carry a book in one hand and a stapler in the other.

Stan asked, Why?

Gil explained that, if he was ever discovered in a lawyer’s office or some other inappropriate location, he would show the book and explain his presence by saying, I was looking for this book.

And the stapler?

If the story about looking for the book did not convince the lawyer of Gil’s innocence, Gil told his best friend, Then I’d use the stapler to hit the guy and kill him!

Stan believed it.

Every day Gil hid his actions and feelings from everybody he knew — except for far-away Stan. Every day Gil lived in fear of getting caught.

He would later say, It was a very rough period for me, very down, very depressed. Notwithstanding the $80,000 salary, it was a very, very tough emotional time for me. . . . Moving to a new city, no friends, practising U.S. law instead of Canadian law. . . . I felt, you know, like a foreigner, like someone who was, you know, ill prepared and didn’t really understand, you know, anything, worthless and a fraud.

2 | The Troll under the Bridge

Kingcityguru was a name that Stanko Jose Grmovsek used online. He liked to write opinions on Internet chat-sites such as Televisionwith outpity.com and Fivestarvideopoker.com and Sherdog.com and to leave brief comments after articles on the liberal-leaning news-site Huffingtonpost.com. Stan was a troll, meaning that he liked to visit chat-sites to insult strangers and offer obnoxious opinions.

On October 6, 2007 (two weeks before his friend Gil’s Intensive Course), Stan commented on a Huffingtonpost news article titled Boy Band Guru, Alleged Pedophile, Is a GOP Donor. Stan’s response to this story about the ex-manager of N’Sync and the Backstreet Boys was I believe a Democratic President was a rapist or, at the least, a sexual harasser. Cuts a bit closer to the Democratic party than this story does to the Republican, but why challenge your convictions? This comment was irrelevant to the subject but managed to insult ex-President Bill Clinton, provoke his supporters, smear all Democrats as hypocrites and, mainly, confuse the issue.

When Stan woke up the next morning, he turned on his computer and pointed-and-clicked his way back to Huffingtonpost, where he read an article titled The Greenest Countries and Cities on Earth. He commented,

If you claim to be green, but are against nuclear production of electricity you are a fraud! . . . We should assist [the poor] by providing nuclear electricity to the world and should start by at least achieving the same level of use in the U.S. as they do in France (80%). — [N]ote: please don’t come back with your ill informed comments about waste as nuclear fuel is the most energy efficient in the world as it retains 95% of its energy generating potential which means that it is the ultimate recyclable fuel (Israel has just developed such a method).

Stan seemed to have an obsession with nuclear electricity — of the over 900 comments he left on Huffingtonpost between 2007 and 2010, about half of them dealt with the subject, repeating the same misleading arguments. (He did not know or care how much of France’s energy came from nuclear; he made the statistic up.) Stan’s monotonous comments were often left at the ends of articles that had nothing to do with nuclear power. Stan clearly delighted in annoying environmentalists (whom he mocked as globalwarmingmongers— a quip copied from Fox TV host Glenn Beck). There was another, hidden reason for his one-man pro-nuke PR campaign: Stan owned a portfolio of shares in uranium-mining companies, and he pumped out propaganda for nuclear energy to boost the value of these shares and make himself richer. (He was already very rich.) Stan also invested heavily in gold and gold-mining companies, which explained why he often (like Beck) urged readers to buy gold.

On non-political sites, Stan would sometimes reveal a more gentle side of his character. On the chat-site Televisionwithoutpity, for example, he liked to discuss some of his favourite TV shows: Dexter, Californication, and House. Stan watched a lot of TV (he had an expensive, big-screen model) and had strong passions about TV. Sometimes he would interrupt a rant about a TV show to discuss his personal life.

In the morning of October 7, 2007, Stan wrote on the Dexter page of Televisionwithoutpity,

If I may offer an aside, my son is 5 and has started a collection of comic book action figures. The question he asks most often is Is this guy good or bad? In almost every case I am forced to answer He is sometimes good and sometimes bad — it depends on the situation and the time in his life. These comic book characters like Batman, Wolverine et al. have a near timeless appeal because they are not one dimensional but comprise an extreme of the best and worst in all of us. I think the writers for House and Dexter seem to have taken that same view with their protagonists. These characters (like T. Soprano before them) are the most interesting on television because they are both so complex and so extreme: a really mean and nasty Doctor that saves the lives of those that others cannot [House]; a horrible and demented killer that protects us by killing those that would kill the innocent [Dexter]. I thought of that again yesterday when I was watching an interview with an author of a book on Idi Amin (former Ugandan mass murderer and dictator) who went out of her way to note that he was a very good father (despite all that killing and torture stuff).

Stan left comments on these sites almost every day, sometimes many times a day, whenever he felt like it. He was unemployed and did not often leave his townhouse in the suburbs north of Toronto. Other than caring for his young son and daughter four days a week, with the help of a live-in nanny, Stan was free to devote his life to hobbies: TV, best-selling books, travel, gambling, spectator sports, and online trolling.

On October 19, 2007 (a week before Gil’s conference), at lunchtime, he wrote on Huffingtonpost that [Hillary] Clinton is the real Manchurian candidate. She is in the pocket of the Chinese government and America will suffer for it.

On the morning of Halloween, a week after Gil’s conference, Stan wrote this on the Dexter page of Televisionwithoutpity: As for serial killers, the most recent American example that comes to mind is the BTK killer — no one apparently suspected anything about him (he even did special work-outs to get extremely strong hands that might be akin to Dex’s fighting skills) and he was only caught, I believe, because he had the ability to write backwards or something like that. So, yes, I believe that a serial killer can act normal without anyone giving him a second look.

Late in the night of Halloween, in response to a Huffingtonpost article titled Henry Kravis’ Transparent Greed, Stan wrote, Don’t be a playah hater. Hate the play, not the playah.

In the night of December 12, Stan was on the Dexter page of Televisionwithoutpity. Somebody else had commented, I wonder how many people who work or have worked in criminal justice are posting here. Stan’s sly response? I suspect there are more than a few criminals lurking on this Board.

Later that day on Huffingtonpost, Stan trolled, Anyone that says they will reduce CO2 by 80% by 2050 is a liar or a nut. . . . What will happen to all the plants and trees without the CO2 they need to grow?

A few days later on the Dexter page of Televisionwithoutpity, Stan wrote,

Dexter was flying his sociopath flag with pride this episode. From the Cleckley list [named after the author of The Mask of Sanity, this list was used to identify sociopaths] . . .

1. Superficial charm and good intelligence

2. Absence of delusions and other signs of irrational thinking

3. Absence of nervousness or neurotic manifestations

4. Unreliability

5. Untruthfulness and insincerity

6. Lack of remorse or shame

7. Antisocial behaviour without apparent compunction

8. Poor judgment and failure to learn from experience

9. Pathological egocentricity and incapacity to love

10. General poverty in major affective reactions

11. Specific loss of insight

12. Unresponsiveness in general interpersonal relations

13. Fantastic and uninviting behaviour with drink, and sometimes without

14. Suicide threats rarely carried out

15. Sex life impersonal, trivial and poorly integrated

16. Failure to follow any life plan

Thank you for that list. I guess I am OK since not all 16 apply to me. What? 14 is not a lot. . . .

Three days later, just after midnight, Stan went back to the Dexter page of Televisionwithoutpity and wrote, Life lesson from the show: AVOID CRAZY PEOPLE!

° ° °

Stanko Jose Grmovsek was 39. He usually gave his middle name as Joseph. Six feet tall, 200 pounds. Stan was born in Canada, and his parents were from Slovenia, part of the former Yugoslavia, near Venice. Stan and his family were Roman Catholics.

Stan had small, narrow eyes that often seemed to squint; sometimes his eyes made him look Asian. He looked people directly in the eyes. He kept his hair in a short, almost military style that did not seem to need combing. He had solid-looking shoulders and chest and a small pot-belly. He was pale from rarely going outside. His voice was loud. Full of confidence, he grinned a lot.

Like Gil, though, Stan had a big secret.

Stan actually had many secrets — such as what had happened to him in the fall of 2004. Three police cars arrived at his house after a loud, senseless argument between Stan and his then wife on their driveway, in front of their two kids. His wife told the officers that there was a handgun inside. The police went into the house and found the cheap, loaded pistol in a drawer in Stan and his wife’s bedroom. Stan was charged under the Criminal Code of Canada with four crimes, including the careless storage of a loaded firearm.

(His 9mm Bryco Jennings semi-automatic had a bad reputation among gun experts because it was known for jamming after only one or two shots. But Stan was not a gun expert, and, besides, one or two shots would be enough.)

Stan pleaded guilty in provincial court. Nobody at the court asked him why he owned the handgun. He was sentenced to a year of probation and told to report to a probation officer; he now had a criminal record.

Stan and his wife divorced and sold their matrimonial home.

Years later, single and living in a rented house in Woodbridge, Stan found himself thinking about an ex-fiancée. In November 2007, around the time of Gil’s big lecture, Stan created a Facebook account just to look at the Facebook page of his ex-fiancée, Jennifer* (names with an asterix at the first appearance have been changed). He often made comments about her while trolling. He claimed that she liked to steal things and call it art and that, during sex, she had enjoyed punching him in the belly and being so punched herself. He claimed that they had been constantly drunk when together.

A long time ago Stan had promised himself never to try to contact his ex-fiancée. He had thought that if he ever did something bad would happen. More than 10 years after their breakup, Stan left an anonymous message on Jennifer’s Facebook page: Old crimes have long shadows, a phrase borrowed from Agatha Christie. Then he deleted his Facebook account.

Soon after leaving that odd and sinister message, Stan’s shares in a northern Canadian mining company (Nova Gold) collapsed in price. Almost overnight Stan lost $600,000. That was not dirty money from one of his secret offshore accounts. That was over half a million dollars of clean money that he had laundered and smuggled into Canada with great hassle and expense. He had to borrow money from his ex-wife to cover the margin call. Even though Stan never repaid this money borrowed from his ex-wife, it was still a big and painful loss. Superstitiously, Stan blamed the loss on the Facebook message he had impulsively left for Jennifer.

He decided to earn the money back as quickly as possible. Even if he had to take some risks.

3 | Project Storm

In the fall of 2007 (around the time Gil Cornblum was preparing for his Intensive Course lecture), Gil’s law firm was hired by a company called A.S.V. to negotiate a merger with a company called Terex. Both were U.S.-based companies. The lawyer assigned to represent A.S.V. in this deal, Jonathan Van Horn, was based in Minneapolis. He was a partner in Dorsey & Whitney, a slender blond man with a hobby of preparing smoked meats. Although there was no Canadian aspect to this deal, Van Horn, like Gil, was an expert on cross-border transactions. Van Horn had worked in Dorsey & Whitney’s Toronto office from 2002 to 2004. This deal was to be handled completely from the Minneapolis office, and there was no need for Gil to be involved.

A.S.V. was a company based in Grand Rapids, Michigan, that manufactured compact track loaders— tank-like rubber-track machines used for high-impact work such as earthmoving, landscaping, excavation, and tree cutting. It earned about $250 million in profit a year.

Terex was based in Westport, Connecticut, and was much bigger than A.S.V., taking in $9.1 billion in net sales in 2007. Terex manufactured a broad range of equipment used in industries such as surface mining, quarrying, construction, infrastructure, utilities, and refining. Terex also offered a complete line of financial products.

When lawyers handled sensitive, ultra-confidential corporate deals like this, they often assigned the file a code name for extra security. The A.S.V. and Terex deal was labelled Project Storm.

Even though they both worked at Dorsey & Whitney, and had worked together on deals in the past, Van Horn did not talk to Gil about Project Storm. Lawyers are generally not supposed to chit-chat about their clients, even to trusted colleagues; there should be a legitimate reason for sharing client information, such as the need to ask for advice or help. Gil was not supposed to know about Project Storm. But he did.

Gil learned about it by accident. He had found himself swamped with work in the late summer and had contacted Van Horn to ask for help. Van Horn had refused, saying that he was too busy with work of his own. Curious about what Van Horn was busy with, and suspecting that he had lied to avoid helping him, in Toronto Gil accessed Dorsey & Whitney’s document-sharing computer program called NetDocuments (which Gil normally did not like using) to spy on his Minneapolis-based colleague. After seeing that Van Horn was working on documents linked to Project Storm, Gil investigated more deeply into the legal database — soon coming across some electronic documents showing the proposed takeover of A.S.V. by Terex. Gil knew that the stock price of A.S.V. would move sharply up if news of this takeover became public.

A perfect opportunity for insider trading.

Gil did not immediately rush out to buy shares in A.S.V.; he was too wise and experienced for that. Many planned corporate deals never actually happen, for one reason or another. Or a deal could happen but under conditions that would not cause the target company’s stock price to rise.

Gil would monitor the progress of the A.S.V. and Terex deal over the coming months, waiting for the right moment to secretly start buying shares. He must often have schemed or brooded about it. When Gil was supposed to be listening to the other lecturing lawyers at the 2007 Intensive Course in Securities Law and Practice, was he actually daydreaming about Project Storm? When he lectured the other lawyers about law, was Project Storm at the back of his mind?

Although Gil was not supposed to know about Project Storm, computer records would later show that he accessed documents related to the deal at least 36 times between the fall of 2007 and the winter of 2008.

On December 22, 2007, at 11:00 a.m., Gil logged on to Dorsey & Whitney’s NetDocuments system and looked at four documents in Jonathan