The Securities and Exchange Commission (SEC) has brought charges against two former Wells Fargo employees, Gregory T. Bolan Jr. (Bolan) of Nashville, Tennessee and Joseph C. Ruggieri (Ruggieri) of Raleigh, North Carolina, for an alleged insider trading scheme involving buying or short selling stocks ahead of research analyst reports which contained ratings changes.
According to the SEC order, Bolan was a research analyst at Wells Fargo Securities, LLC (Wells Fargo) and provided Ruggieri, a former trader at Wells Fargo, with advance notice of forthcoming rating changes. This advanced information allegedly led to Ruggieri trading ahead of the ratings changes; short selling stock ahead of a downgrade and buying stock ahead of upgrades. Ruggieri allegedly generated over $117,000 in gross profits for Wells Fargo and was terminated from Wells Fargo after compliance questioned him about communications involving Bolan. Bolan resigned from Wells Fargo after being questioned by compliance personnel. The SEC’s order, instituting a litigation proceeding, charged Bolan and Ruggieri with violating Sections 17(a) and 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The administrative proceeding will determine what, if any, relief is in the public interest, including disgorgement of ill-gotten gains, prejudgment interest, monetary penalties and other remedial measures.
Illegal insider trading is the act of buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about a company. Insider trading violations may also include “tipping” such information; trading by the person tipped – the “tippee,” and trading by those who misappropriate such information. Section 10(b) of the Securities and Exchange Act of 1934 makes it unlawful for any person to “use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” To implement Section 10(b), the SEC adopted Rule 10b-5, which makes it unlawful to engage in fraud or misrepresentation in connection with the purchase or sale of a security.