The Ring Around the Wells Fargo Banker Gets Collared.

[ by Howard Haykin ]

The SEC on Thursday took down a Charlotte, NC-based investment banker who, with 9 cohorts, operated an insider trading ring that garnered more than $11 million in illicit profits trading on confidential information about impending mergers.

SEC Findings and Allegations.   John Femenia misused his position at Wells Fargo Securities to obtain and use material, nonpublic information about 4 separate merger transactions involving firm clients. Once in possession of news about an impending deal, Femenia’s typically called his longtime friend Shawn Hegedus, who worked as a registered broker.  From there, Femenia and Hegedus passed the information onto others in their ring of friends and family members.  The ring extended to 5 states.  The SEC has obtained a court order freezing the assets of the illegal traders.

Femenia was based in Wells Fargo’s Charlotte office when ...  most of the misconduct occurred, but later moved and worked in New York, his current place of residence.  Femenia’s tippees included the following:

• friends Aaron Wens of Encinatas, CA, and Matthew Musante of Miami.
• Musante tipped his father Anthony Musante Melbourne, FL.

Hegedus tipped the following:

• girlfriend Danielle Laurenti and his business colleague Roger Williams of Georgetown, S.C. 
• Williams, in turn, tipped 3 of his friends - Frank Burgess, Jr. of Charlotte, James Hayes IV of Charlotte, and Kenneth Raby of Greer, S.C.

Two companies - Coram Real Estate Holdings Inc. and GoldStar P.S. - both with ties to Hegedus or Laurenti also were charged with being involved in the illegal trading. 

The illegal trading allegedly took place occurred from July 2010 to July 2012 and involved the following acquisitions:

• ATC Technology by GENCO Distribution Systems (announced 7/19/10).
• Smurfit-Stone Container by Rock-Tenn Company (announced 1/23/11).
• K-Sea Transportation Partners by Kirby Corporation (announced 3/13/11).
• The Shaw Group by Chicago Bridge & Iron (announced 7/30/12).

At least one trader paid Femenia a "finders fee," provided a portion of his profits in exchange for the information. Some downstream tippees also kicked back a portion of their profits. 

The actions that the 10 allegedly conducted would be in violation of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.

At the SEC’s request, the federal judge entered a temporary restraining order freezing the assets of the defendants and relief defendants. The court order also provides for expedited discovery and prohibits the defendants and relief defendants from destroying evidence. 

SEC Staff Credits.   Investigation by Atlanta Regional Office Staff Attorney Monifa Wright, supervisor Assistant Regional Director Matthew McNamara.  Paul Kim, Pat Huddleston will lead the litigation.

For further details, go to:   [SEC PR 12-255, 12/5/12] and [SEC Complaint].