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 The Securities and Exchange Commission said Wells Fargo Advisors LLC
did not have proper controls, unreasonably delayed producing
documents during the SEC's probe, and provided an "altered document"
related to a compliance review of the broker's trading.
Tony Mattera, a spokesman for Wells Fargo Advisors, declined to
comment.
The SEC said on Monday that this marked the first time it had ever
filed charges against a brokerage for failing to protect a
customer's material, non-public information.
The SEC's case against Wells Fargo related to alleged activity by
Waldyr Da Silva Prado Neto, a former Brazil-based broker who has
been charged in criminal and civil proceedings with insider trading
in Burger King securities before a 2010 buyout.
Prosecutors alleged in January that Prado learned from a client that
the private equity firm 3G Capital Partners had planned to buy
Burger King, and passed the news to Igor Cornelsen, a banker who had
been prodding him for tips.
The two allegedly communicated via email in Portuguese, with
Cornelsen asking if the "sandwich deal" was going to happen.
After Prado confirmed it, the two both traded Burger King securities
before the buyout announcement, and collectively reaped more than $1
million in profits, prosecutors said.
Cornelsen and his firm, Bainbridge Group, previously settled
parallel SEC charges in November 2012 and agreed to pay $5.18
million. Earlier this year, a federal judge issued a default
judgment of $5.63 million against Prado in connection with the SEC's
charges.
'UNREASONABLE' DELAY
The SEC alleges that numerous groups at Wells Fargo responsible for
compliance and supervision had an indication that Prado was misusing
customer information but failed to take action.
The regulator also said that when the SEC asked Wells Fargo to turn
over records about its compliance reviews for the broker's trading,
certain documents were omitted and took six months to finally
produce.
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“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,”
said Daniel Hawke, the chief of the SEC Enforcement Division’s
Market Abuse Unit.
“The firm’s actions improperly delayed our investigation, and the
production of an altered document interfered with our search for the
truth."
Prado is not the only Wells Fargo employee accused of insider
trading in recent years.
In 2012, the SEC charged John Femenia, a former banker for Wells
Fargo Securities, with misusing his position to obtain material,
non-public information about mergers involving his clients.
Femenia and the others involved in that scheme have since pleaded
guilty to parallel criminal charges.
(Reporting by Sarah N. Lynch; Editing by Jim Loney and Peter Cooney)
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