A former Wells Fargo & Co. (WFC) investment banker is among nine people charged with taking part in an insider-trading conspiracy that brought in $11 million in illegal gains from tips on pending mergers.
John Femenia, 31, is accused of misusing his position at Wells Fargo Securities LLC to get information about transactions involving the firm’s clients and turning the data over to others in exchange for kickbacks of cash and gold, according to an indictment unsealed today in federal court in Charlotte, North Carolina. Six of those charged will plead guilty, the Justice Department said in an e-mailed statement.
Femenia worked in San Francisco-based Wells Fargo’s Charlotte office when most of the activity allegedly occurred and later in New York, where he lives now, according to the U.S. Securities and Exchange Commission, which filed a civil case against Femenia in Charlotte on Dec. 5. He was arrested today in New York, according to the government.
From March 2010 until December, “the defendants and others were members of an insider trading conspiracy that stole material nonpublic information, including information about upcoming corporate mergers and acquisitions, from Wells Fargo and its clients,” according to the indictment.
The tips involved acquisitions of ATC Technology Corp. in 2010, Smurfit-Stone Container Corp. and K-Sea Transportation Partners LP in 2011 and Shaw Group Inc. (SHAW) in 2012, according to the indictment.
“Wells Fargo has robust policies and training programs in place on the handling of confidential information, and we have a zero-tolerance policy for the misuse of such information,” Elise Wilkinson, a spokeswoman for Wells Fargo, the biggest U.S. home lender, said in an e-mailed statement. “Mr. Femenia is no longer employed at Wells Fargo and we are continuing to assist the SEC and U.S. Attorney with their actions.”
Femenia passed his inside information to friends, according to the indictment. The tips were then spread to their friends and family members in five states, according to the government.
In addition to insider trading conspiracy, Femenia is charged with wire fraud conspiracy, insider trading, mortgage fraud and money laundering conspiracy. If convicted of the bank fraud charge alone, Femenia faces as long as 30 years in prison.
Femenia was arrested today at 6 a.m. at his home in Lower Manhattan and appeared before a federal magistrate in New York, according to Jim Margolin, a spokesman for the Federal Bureau of Investigation’s New York office.
Femenia was released on a $1.25 million personal recognizance bond secured by $500,000 in cash or property, according to court records. His next court date is Dec. 27. Femenia, who is represented by Scott Morvillo, can’t have any contact with his co-defendants outside the presence of counsel.
Two of the alleged co-conspirators, Shawn Hegedus and Danielle Laurenti, are fugitives, according to prosecutors.
Hegedus is a high school friend of Femenia’s who at times worked as a stockbroker and financial adviser. He allegedly bought 550 gold bars on Aug. 2 with some of the insider trading proceeds, according to the indictment. Prosecutors are seeking forfeiture of the gold, a home, and the $11 million of allegedly illegal profit.
In addition to insider trading, Hegedus and Laurenti are also accused of laundering proceeds from the tips through a casino in Las Vegas and engaging in mortgage fraud while buying a home in Waxhaw, North Carolina.
The indictment stems from a probe by a Charlotte-based task force of the FBI, dubbed “Operation Insider Out” that began earlier this year to seek out insider trading activities in the Charlotte area, according to the Justice Department.
The case is U.S. v. Femenia, 12-cr-00386, U.S. District Court, Western District of North Carolina (Charlotte).
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