Broker a part of 'phone tree of inside information,' SEC charges

Allegedly tipped girlfriend, business partner about M&A deals

Dec 6, 2012 @ 11:01 am

By Liz Skinner

SEC
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A Wells Fargo investment banker tipped a broker friend about four corporate mergers over a two-year period, initiating an insider trading ring that generated $11 million in illegal profits and involved eight other people in five states, securities regulators said.

The Securities and Exchange Commission alleged banker John Femenia, 30, told broker Shawn Hegedus, 31, about four merger transactions that Wells Fargo & Co. clients were working to complete. Mr. Hegedus was a registered representative for both John Thomas Financial and Gradient Securities LLC during the July 2010 to July 2012 scheme, the SEC said in its complaint, filed in U.S. District Court in Charlotte, N.C.

In addition to tipping off his longtime friend Mr. Hegedus, Mr. Fimenia told other friends who lived in California and Miami, one of whom passed the insider information to his father. Mr. Hegedus then told his girlfriend and business partner, who passed the information along to three friends. All these people, as well as two companies tied to Mr. Hegedus or his girlfriend, were charged by the SEC in its complaint.

Judge Graham Mullen froze the assets of all the defendants, some of whom paid a portion of their illicit trading profits to the tippers and longtime friends, Mr. Hegedus and Mr. Fimenia, the SEC said.

Mr. Femenia, who worked for Wells Fargo in Charlotte, through much of the period of the alleged insider trades, moved to New York with the bank in May 2012. Mr. Hegedus is a resident of Mt. Sinai, N.Y., and Miami, and hasn't been registered with the Financial Industry Regulatory Authority Inc. since April 2012, according to his BrokerCheck record.

“Here you have an investment banker who clearly knew better that inside information can't form the basis of trading decisions,” said William Hicks, the SEC's associate director for enforcement in Atlanta. “Instead, he basically started a phone tree of nonpublic information to enrich friends and others.

Wells Fargo issued a statement saying Mr. Femenia has been placed on leave as a result of the allegations. Neither Mr. Fimenia nor Mr. Hegedus could be reached, and the SEC didn't know of any attorneys representing the men.

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