A landmark legal decision that makes it harder to pursue insider-trading investigations is causing more headaches for U.S. regulators.
The U.S. Securities and Exchange Commission lost a case Monday against a former Wells Fargo trader who it accused of profiting from tips provided by an analyst at the bank. The setback was delivered by an SEC administrative law judge – in-house arbiters who securities lawyers consider friendly to the regulator.
The SEC failed to prove that the tipster received a personal benefit for giving information to Joseph Ruggieri, who previously worked for Wells Fargo Securities, according to the decision by administrative law judge Jason Patil. The judge cited the December reversal of two insider trading convictions, a decision that forces the SEC to prove that the person leaking the information received something in return.
The loss was the first ever for the SEC on an insider-trading case that was handled by an administrative law judge.
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“This decision makes clear what we have said from the beginning: Joseph Ruggieri did not commit insider trading,” his attorney, Paul Ryan, said in an e-mailed statement.
The defeat contrasts with criticism that SEC in-house judges are biased in the agency’s favor. The Wall Street regulator is facing multiple lawsuits claiming that its system for using administrative law judges is unconstitutional. Two federal judges have ruled this year that the agency’s method for hiring the judges is likely improper.
Judy Burns, an SEC spokeswoman, declined to comment on Patil’s decision.
The judge didn’t dispute that Ruggieri traded on inside information. The tipster, Gregory Bolan, a former Wells Fargo research analyst, allegedly alerted Ruggieri of upcoming ratings changes on six stocks before they were made public. The tips enabled Ruggieri to generate more than $117,000 in profits, according to the SEC.