By Sarah N. Lynch
WASHINGTON Dec 5 U.S. securities regulators
charged a Wells Fargo investment banker and nine others
with fraud on Wednesday in connection with their alleged role in
an insider-trading ring that earned more than $11 million by
trading on tips about impending mergers.
The Securities and Exchange Commission said that John
Femenia, 30, misused his position at a unit of Wells Fargo to
obtain material, non-public information about four different
mergers involving clients.
The SEC said Femenia then tipped his friend, Shawn Hegedus,
a registered broker-dealer. The SEC says the two then tipped
other friends, resulting in a "massive, serial insider-trading
ring" that spread across five states.
The SEC said it has already obtained a court order to freeze
the defendants' assets.
"Here you have an investment banker who clearly knew better
that inside information can't form the basis of trading
decisions," said William Hicks, associate director for
enforcement in the SEC's Atlanta Regional Office.
"Instead, he basically started a phone tree of nonpublic
information to enrich friends and others."
According to the SEC's complaint, filed in the U.S. District
Court for the Western District of North Carolina, Femenia is
still employed in the Wells Fargo New York office with the
Industrials Investment Banking Group. Previously, he worked in
the North Carolina office.
A spokeswoman for Wells Fargo said the bank had just learned
about the allegations against Femenia on Tuesday and immediately
placed him on leave, adding that the bank was "assisting and
fully cooperating with the SEC and other agencies.
"Wells Fargo has detailed policies and training programs on
the handling of confidential information, and we have a
zero-tolerance policy for the misuse of such information," the
Hegedus, 31, was previously employed by brokerages John
Thomas Financial, and more recently, Gradient Securities LLC,
until April 2012.
Attempts to reach Femenia and Hegedus were unsuccessful, and
the SEC said there is no known defense counsel at this time.
The other defendants named in the SEC's civil complaint
include friends of Femenia and Hegedus, as well as the father of
one of Femenia's friends, who live in states ranging from
California to Florida and South Carolina.
Two companies with ties to Hegedus and his girlfriend were
also named as defendants in the SEC's lawsuit.
The SEC said Femenia was able to profit from stock and
options trades in companies that were being acquired, and that
"at least one trader provided a portion of his profits to
Femenia in exchange for the information," according to an SEC