The Securites and Exchange Commission said Monday that Wells Fargo Advisors (WFC) will pay $5 million for failing “to maintain adequate controls to prevent one of its employees from insider trading based on a customer’s nonpublic information.”
The SEC also charged the bank with “unreasonably delaying its production of documents during the SEC’s investigation and providing an altered internal document related to a compliance review of the broker’s trading.”
According to the SEC, Wells Fargo admitted wrongdoing in the case.
“When investors entrust private information to their stockbrokers or investment advisors, they have the right to expect that it will not be exploited,” said Andrew J. Ceresney, director of the SEC’s enforcement division, in a press release.
“In this case — our first against a broker-dealer for failing to protect the nonpublic information conveyed by its customers — Wells Fargo failed to implement procedures to prevent misuse of such information,” Ceresney explained.
(The bank declined to comment on the matter.)
In its own documents, Wells Fargo highlighted the risk of its employees misusing confidential information obtained from retail customers and clients, according to regulators. The bank says one of its staff members learned confidentially from a client that Burger King was being acquired by a New York-based private equity firm and then traded on that nonpublic information ahead of the announcement.
In 2012, the SEC charged Waldyr Da Silva Prado Neto, a citizen of Brazil working at the time for Wells Fargo in Miami, with illegally trading in Burger King stock for $175,000 in illicit profits. He also tipped off others living in Brazil and elsewhere, who were able to trade on the nonpublic information.
‘Failed to Act’
The SEC’s order says that multiple groups responsible for compliance or supervision within Wells Fargo had indications that the advisor was misusing customer information. However, the regulators say, these groups “lacked coordination or any assigned responsibilities, and they ultimately failed to act on these indications.”
As the SEC outlined, federal law requires that broker-dealers and investment advisors “establish, maintain and enforce policies and procedures to prevent such misuse of material nonpublic information.”
In addition, the SEC’s order found that when investigators asked for all documents related to the firm’s compliance reviews of the broker’s trading, Wells Fargo’s document production “omitted documents related to the broker’s trading in Burger King stock.”
Some six months after SEC investigators first requested the documents, Wells Fargo produced the Burger King-related review “without any explanation as to why it was not produced in the first place.”
Furthermore, the regulators add, Wells Fargo “failed to provide an accurate record of the review because one of the documents had been altered to include additional language before it was produced 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, in a statement. “The firm’s actions improperly delayed our investigation, and the production of an altered document interfered with our search for the truth.”
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