Wells Fargo has been fined $5 million because one of its brokers made trades using confidential customer information.
If you use material non-public information to make money, such as buying or selling shares or informing others, you are breaking the law – you are guilty of insider trading.
According to the Securities and Exchange Commission (S.E.C.), the activity was hidden from the firm for 6 months.
On Monday regulators fined Wells Fargo Advisors for $5 million, after concluding that it failed to prevent insider trading and conduct internal reviews of individual broker trades.
It is one of the first times the S.E.C. has charged a brokerage firm for not protecting a client’s private information.
This is not the first time that Wells Fargo has come across trouble with the S.E.C. The former Wells Fargo broker, Waldyr De Silva Prado Neto, is currently facing charges for insider trading of the Burger King stock.
In 2010 Prado received information from a client that Burger Kind was going to be acquired by the private-equity firm 3G Capital Partner.
The S.E.C. looked at the emails Prado, from Brazil, was sending to friends, telling them about the acquisition, the information was eventually passed on to the banker Igor Cornelsen who asked “”is the sandwich deal going to happen,” and subsequently made $1.68 million off of the illegal trades.
Prado and Cornerlson were sentenced for charges that carry up to 20 years in jail for fraud by prosecutors in Manhattan, although, according to the U.S. Attorney’s Office, neither have been arrested and the case is still pending.
During the S.E.C’s investigation of Prado, the agency found out that there were various groups within Wells Fargo that knew about his misuse of customer information but didn’t act.
Authorities requested Wells Fargo to provide documents about Prado’s trading history, however the firm did not provide information on his trades with Burger King. Half a year later Wells Fargo did provide the information, however, failed to mention why they withheld it at the beginning.
In addition, investigators have found Wells Fargo to be accusable of not providing an accurate record of Prado, as one of the documents given was altered.
According to Daniel Hawke, chief of the SEC enforcement division’s market abuse unit:
“Wells Fargo unreasonably delayed producing documents to the SEC’s staff and altered a previously requested compliance document after the SEC charged a former Wells Fargo employee with insider trading.”
“The firm’s actions improperly delayed our investigation, and the production of an altered document interfered with our search for the truth.”
This is not the first time Wells Fargo has been enmeshed in insider-trading charges. In 2012, the SEC charged former Wells Fargo Securities banker John Femenia with using tips about impending mergers to pull in more than $11 million.