Wells Fargo Advisors has agreed to pay a $5 million penalty to settle allegations from the Securities and Exchange Commission that the firm failed to prevent one of its brokers from making insider trades based on non-public client information.
The charges relate to former Wells Fargo broker Waldyr Da Silva Prado Neto, a citizen of Brazil, who was charged with insider trading after misusing confidential information he learned from a client that Burger King Holdings Inc. was being acquired by a New York private-equity firm. The trades occurred in 2010.
The SEC
said that Wells Fargo, which has more than 15,000 advisers and over one million brokerage customer accounts, did not have proper procedures in place to recognize, report and address concerns that its advisers were engaged in illicit activity.
“The way in which the policies and procedures were designed caused Wells Fargo Advisors not to recognize several red flags that its representative was engaging in insider trading in Burger King securities,” the SEC said. “Although a compliance group at Wells Fargo Advisors reviewed this trading after an acquisition announcement, information about the trading was not shared with senior managers or other
compliance groups that were also aware of issues relating to the trading prior to the announcement.”
As part of the settlement, Wells Fargo Advisors admitted wrongdoing. Wells Fargo spokesman Anthony Mattera declined to comment.
Earlier this year, SEC also
ordered Mr. Prado to pay $5.6 million and froze his assets to prevent him from transferring profits outside the U.S.
The fine is the first-ever against a broker-dealer for failing to protect a client's material non-public information, the SEC said.
The SEC also said that Wells Fargo had unnecessarily delayed the investigation by holding back requested documents and altering another record before sending it to the SEC.
“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 M. Hawke, 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.”
