The Securities and Exchange Commission on Wednesday announced an enforcement action against a former Wells Fargo Advisors compliance officer for allegedly altering a document after the SEC started an investigation into a Wells Fargo broker’s trading of Burger King stock.
The SEC Enforcement Division alleges that Judy K. Wolf altered a two-year-old document summarizing her investigation of Waldyr Da Silva Prado Neto, a citizen of Brazil working at the time for Wells Fargo in Miami, to make her inquiry appear more thorough.
Cipperman Compliance Services notes that Wolf’s behavior should serve as a cautionary tale for other compliance officers. “The respondent may have lost her job for failing to detect the insider trading,” but ”she now has a public enforcement action against her for trying to cover it up,” Cipperman says. ”Firms and compliance officers should take note that false negatives (everything is OK) are much more dangerous than false positives (issue identified that is not really an issue).”
The SEC fined Wells Fargo Advisors $5 million in late September for failing “to maintain adequate controls” to prevent Da Silva Prado Neto from insider trading based on a customer’s nonpublic information. The SEC maintains that Da Silva Prado Neto illegally traded in Burger King stock for $175,000 in illicit profits.
Wolf — who was responsible for identifying potentially suspicious trading by Wells Fargo personnel or the firm’s customers and clients and then analyzing whether the trades may have been based on material nonpublic information — altered a document that was produced to Commission staff during an investigation that was seeking to determine, among other things, whether Da Silva Prado Neto committed insider trading and whether Wells Fargo Advisors failed to have policies in place to stop such trades.
Wolf altered the document that summarized her review of Da Silva Prado Neto to make it “appear that she performed a more thorough review in 2010 than she actually had,” the SEC says.
Wolf closed her September 2010 review of the broker with “no findings,” despite the fact that there were several “red flags” that indicated she should have performed a “lookback” review of his trades.
However, in December 2012, after the Commission had filed an action against the registered rep for insider trading, and during the Commission’s continuing investigation, Wolf altered the document.
After Wells Fargo provided the document to the SEC as part of its continuing investigation, the SEC says the agency’s enforcement staff spotted the alteration and questioned Wolf specifically about the document. “At first she unequivocally denied altering the document after September 2010, but in later testimony she testified that she had done so,” the SEC says.
Because Wolf closed the file with “no findings,” her supervisors never became aware of the underlying suspicious activity, which led to charges against Wells Fargo.
When questions arose about the altered the document, Wells Fargo Advisors placed Wolf on administrative leave and eventually terminated her employment.
“We allege that Wolf intentionally altered a trading review document after she knew that the SEC had charged a Wells Fargo employee with insider trading based on facts related to her review,” said Daniel M. Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit, in a statement. “Regardless of her motivation, her conduct was inconsistent with what the SEC expects of compliance professionals and what the law requires.”
The SEC Enforcement Division alleges that Wolf, who lives in St. Louis, willfully aided and abetted and caused Wells Fargo to violate the securities laws.
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