Details about the scheme carried out by law school friends Gil Cornblum and Stan Grmovsek are beginning to emerge following Grmovsek’s guilty pleas  in Toronto and New York on Tuesday to a variety of fraud and insider trading charges. The allegations describe one of the most brazen insider trading operations in recent memory.  The case also involves a tragic end for Cornblum, who as previously discussed here, killed himself on Monday as information about the scheme was about to be released.

The two men reportedly hatched their insider trading operation in 1994, and carried it out for years. The Globe and Mail reports that while working as a lawyer in a big law firm, Cornblum engaged in  “covert ’spelunking’ raids on partners’ offices and computers to uncover lucrative corporate secrets.”

According to court documents, Grmovsek would phone his friend every morning at about 4 a.m. to wake him so he could get an early start on what they called “spelunking” hunts through the law firm Sullivan & Cromwell’s empty offices.  The tactics reportedly included:

• seeking press releases and contracts left on desks and photocopiers;
• using temporary passwords issued by night-time secretaries to mine electronic data on the firm’s computer systems; and
• chatting with other Sullivan & Cromwell attorneys “at lunch or in the hallways” about the files on which they were working.

In around 1999, the two men were “overcome by stress” and stopped the scheme for five years.  They resumed in 2004, however, trying to be far more cautious. Cornblum, then working at Dorsey & Whitney, stopped using his office phone to call Grmovsek and instead started using pay phones and weekly lunch dates to exchange information. Canadian securities regulators claim that Grmovsek and Cornblum ultimately made $9 million in stock profits over a 14-year period.

Grmovsek faces a sentence of up to five years in prison for the U.S. charges, and is scheduled to be sentenced on November 23. Like Grmovsek, Cornblum had also agreed to plea guilty to the charges, but he disappeared from his family home Sunday night.  His body was found by police shortly after 7 a.m. Monday in the Don Valley in central Toronto.