The Securities and Exchange Commission on Monday announced insider trading charges against two former Wells Fargo employees for a scheme in which two traders allegedly profited on tips from one of the bank’s analysts.
The SEC alleged that Gregory Bolan Jr., while an analyst at Wells Fargo, tipped a trader at the firm, Joseph Ruggieri, before he published research reports that upgraded or downgraded ratings for certain securities. The tips allowed Ruggieri to generate more than $117,000 in profits in his Wells Fargo trading account, the SEC said.
Bolan also tipped a friend, now deceased, with nonpublic information about ratings, generating $10,000 in profits for the friend, the SEC said.
“Bolan gave two traders a sneak preview into his upcoming ratings changes and provided them an unfair and illegal advantage on the rest of the markets,” said Daniel Hawke, chief of the SEC enforcement division’s market abuse unit.
Bolan, 37, was an analyst in Wells Fargo’s research department in Nashville, Tenn., from June 2008 to April 2011 and is now a research analyst at Sterne Agee Group in Nashville, according to the SEC order. Ruggieri, 35, was a trader of health care stocks for Wells Fargo in New York from August 2009 to April 2011 and is now at International Strategy & Investment Group LLC in Raleigh.
The SEC filed an order alleging Bolan and Ruggieri willfully violated securities laws. Proceedings before an administrative law judge will determine whether the pair must pay restitution, penalties or face any other measures.
Sam Lieberman, a New York attorney representing Bolan and Ruggieri, said the pair are “respected members of the securities community who vehemently deny these allegations and intend to fight them vigorously and prove that the SEC’s case is entirely unfounded.” Lieberman said he believes the SEC has a weak case based on circumstantial evidence, which is why the SEC brought it before an administrative law judge rather than a federal jury.
According to the SEC order, Wells Fargo paid Ruggieri a salary and 6 percent of the monthly profits in his trading account. Bolan also benefited from his tipping, according to the order. Ruggieri gave positive feedback to Bolan’s managers, helping him get promoted. Ruggieri also let Bolan use his apartment when Bolan left Wells Fargo, the order said.
San Francisco-based Wells Fargo bulked up its securities business when it bought Charlotte-based Wachovia in 2008. The bulk of its investment banking and trading operations are in Charlotte.
Wells spokeswoman Elise Wilkinson said Wells discovered the issue in 2011 and immediately reported it to regulators. “We are not a party to the matter and have cooperated fully during the SEC’s investigation,” she said.
Insider trading has been a focus for law enforcement officials in recent years, with prosecutors winning convictions against high-profile hedge fund employees. The latest case marks at least the third case involving former Wells Fargo employees in recent years:
• A year ago, former Wells investment bankerJohn Femenia pleaded guilty
for his role in an $11 million insider trading conspiracy. Investigators said Femenia, who once worked in Charlotte, used his position at Wells to find out about upcoming acquisitions the bank was advising on, then tipped off friends and business partners so they could buy stock in the companies involved.
• Last week, theSEC charged Wells’ brokerage arm
with failing to maintain adequate controls to prevent one of its employees from insider trading based on a customer’s information. Wells admitted wrongdoing and agreed to a $5 million penalty to settle the charges, the first ever against a broker-dealer for failing to protect a customer’s nonpublic information.