October 29, 2014 — Those employed by investment advisers and broker-dealers are entrusted with sensitive and confidential information concerning their clients’ business dealings. Using that information for personal gain is a crime. It is also a crime for a broker-dealer to fail to implement programs to ensure that inside employees do not engage in insider trading. To deal with the problem of insider trading, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included a whistleblower program. Informants who notify the Securities and Exchange Commission (SEC) about insider trading may be rewarded for their bravery in collaborating with the government. Whistleblowers could receive up to thirty percent of the amount the government recovers based on the informant’s key information, provided the amount exceeds $1 million.
SEC Charges Wells Fargo With Failing To Institute Program To Prevent Insider Trading And With Hampering Investigation By Producing Altered Document
Wells Fargo Advisors LLC has been charged for failing to implement procedures to prevent employees from illegal insider trading. U.S. securities laws require investment advisers and broker-dealers to initiate and enforce internal strictures to prevent employees from misusing nonpublic information to profit from insider trading operations. Wells Fargo admitted to the charges and will pay a $5 million penalty.
The charges stem from an insider trading incident that occurred when a Wells Fargo broker learned confidentially that Burger King would be acquired by a private equity firm in New York. The broker was charged with insider trading.
Not only was the broker to blame, Wells Fargo itself was at fault, the SEC has found. Those at Wells Fargo with the responsibility for supervising brokers and their compliance with securities laws allegedly were on notice that the broker had been misappropriating confidential information from customers. No action was taken, however.
The enforcement action is the SEC’s first against a broker-dealer for the failure to develop and enforce procedures to stop employees from misusing nonpublic information learned from customers.
To compound Wells Fargo’s wrongdoing, when the SEC requested documents concerning the broker’s trading, Wells Fargo withheld documents related to the Burger King trades for six months. When the documents were finally produced, it was discovered that a compliance review of the broker’s trading had been altered. This conduct violated further provisions of U.S. securities laws, which require the prompt production of accurate records and books upon request from the SEC.
Whistleblowers Notify SEC of Insider Trading
While Waters & Kraus is not handling this particular incident of insider trading, we are representing whistleblowers in similar qui tam matters. If you have comparable claims against a co-worker or anyone else engaged in insider trading, contact us or call our qui tam attorneys at 855.784.0268 to learn more about our practice and how we can work together to notify the government about fraud and abuse. Our qui tam lawyers, such as Paul Lawrence in the firm’s Washington D.C. area office and Gary Paul in the California office, are committed to advancing and protecting informants’ interests in whistleblower lawsuits.
