NEW YORK (Reuters) - An administrative judge has cleared the way for U.S. regulators to take two former Wells Fargo & Co employees to trial in a closely watched case testing the limits of insider trading laws.
U.S. Securities and Exchange Commission Administrative Law Judge Jason Patil in an order Wednesday called it an “exceedingly close matter” of whether a recent federal appellate court ruling on insider trading required tossing the charges against Gregory Bolan and Joseph Ruggieri.
The SEC alleged that Bolan, a research analyst, tipped Ruggieri, a trader, about upcoming upgrades and downgrades in ratings of various companies, allowing Ruggieri to make more than $117,000 in profits for Wells Fargo.
The SEC, which brought the case in September, said Bolan also tipped off a friend, who was able to reap $10,000. The friend has since died.
Bolan and Ruggieri had argued the case should be dismissed following a decision in December by the 2nd U.S. Circuit Court of Appeals in New York.
While Bolan and Ruggieri raised “persuasive counterpoints,” Patil said “deciding those points calls for the weighing of evidence and balancing of probabilities” which would require testimony.
Absent an agreement by the SEC and defendants for a limited evidentiary hearing, the ruling clears the way for a March 30 non-jury administrative trial in New York.
Lawyers for Ruggieri and Bolan said they were encouraged that the judge viewed the issue as a close call. Paul Ryan, Ruggieri’s lawyer, said he was “confident that Mr. Ruggieri will be fully vindicated after the judge hears the facts.”
An SEC spokesman did not respond to a request for comment.
The 2nd Circuit, reversing the convictions of hedge fund managers Todd Newman and Anthony Chiasson, ruled that authorities must prove a trader knew the source of a tip received a benefit in exchange for the information.
The court also narrowed what constitutes a benefit, saying it must be of “some consequence.” The 2nd Circuit said it cannot be just friendship but must be a “meaningfully close relationship” suggesting a quid pro quo.
Defense lawyers argued the SEC’s alleged benefits to Bolan, friendship and positive job feedback from Ruggieri, were insufficient.
Previously, the SEC argued the ruling did not apply, but Patil this month ruled the SEC would need to establish Bolan received a benefit.
The case is In the Matter of Bolan and Ruggieri, U.S. Securities and Exchange Commission, Administrative Proceeding No. 3-16178.
Reporting by Nate Raymond in New York; Editing by David Gregorio