Wells Fargo Advisers LLC has consented to pay $5M to resolve U.S. Securities and Exchange Commission charges accusing the firm of not keeping up adequate controls so that one of its employees would be unable to use a customer’s nonpublic information to engage in insider trading. Wells Fargo also was charged with taking too long to produce documents during the SEC’s probe and giving the regulator an altered document related to a review of a broker’s trading activities.
Federal law mandates that investment advisers and broker-dealers set up, keep up, and enforce procedures and policies so that material nonpublic data of customers is not misappropriated. This is the first time the Commission has charged a brokerage firm for not protecting a customer’s material, nonpublic data. Wells Fargo is settling the charges without admitting or denying wrongdoing.
The agency says that Wells Fargo broker Waldyr Da Silva Prado Neto found out in confidence from a customer that private equity firm 3G Capital Partners Ltd. was acquiring Burger King in 2010. The client had placed $50 million in the fund that would go on to acquire the hamburger chain. Prado then traded on the information before it was made public. The regulator filed insider trading charges in 2012.
The Commission says that the Wells Fargo groups responsible for supervision and compliance became aware of indicators that Prado was misusing customer data. But due to a lack of coordination and assigned accountabilities, they did not take action.
Also according to the SEC’s order, when its investigators requested documents related to Wells Fargo’s compliance review of Prado’s trading, the firm left out some documents related to his involvement in Burger King stock. The broker-dealer eventually provided the documents but not until six months later.
Also, one of the documents was purportedly altered with additional language before it was given to the SEC. The regulator is accusing Wells Fargo of not providing an accurate record of Prado’s compliance review.
Last week, the Commission instituted an administrative proceeding against Judy K. Wolf, the compliance officer accused of altering the document. She has been let go from Wells Fargo. Her job with the firm was to identify potentially suspicious trading, either by clients and customers or personnel, and analyzing whether material nonpublic data was involved.
In 2010, Wolf made a document summarizing her review of Prado’s trading activity that was concluded with no findings. The SEC Enforcement Division says that in 2012, she modified the document after Prado was charged, to make it look as if her review had been more thorough. Although Wolf initially denied altering the document, she later admitted to making the changes.
Read the SEC Order Charging Wells Fargo (PDF)
Read the SEC Order Against Wolf (PDF)
Read the SEC Order Charging Prado (PDF)
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