Two Wells Fargo employees were charged by the Securities and Exchange Commission (SEC) for their involvement in an alleged profiting scheme set to buy and short sell stock before research analyst reports confirmed ratings changes.
Research analysts provide recommendations and ratings with reports on stocks and other security they’ve reviewed. When analysts change previous reviews on prospects of a security, a report with ratings changes is released. The SEC contends that while Gregory T. Bolan Jr. was at Wells Fargo working as a research analyst, he tipped a trader at the firm, Joseph C. Ruggieri, in advance of several market-moving ratings upgrades or downgrades he made in specific securities. The tips brought $117,000 in profits for Ruggieri.
“Instead of abiding by firm policies that specifically prohibited trading ahead of published research, Ruggieri used information obtained from Bolan to make profitable trades in advance of six separate research reports,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office. “The repeated nature of these violations demonstrates an utter disregard for our insider trading laws.”
Bolan is also suspected of tipping a close friend with nonpublic information regarded some of his future ratings changes. The friend, who recently passed away, benefitted from profits nearing $10,000 in a personal brokerage account by placing trades ahead of three ratings changes. “Bolan gave two traders a sneak preview into his upcoming ratings changes and provided them an unfair and illegal advantage on the rest of the markets,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit.
Upon receiving trade tips, Ruggieri preceded to allegedly purchase the company’s relevant stocks or sell the stock short ahead of Bolan’s downgrades. Between April 2010 and March 2011, Bolan released eight research reports with ratings changes or initiations of coverage with “underperform” or “overperform” ratings. Ruggieri profited by trading ahead of six of these reports in an unfamiliar trading pattern. Only a small handful of Ruggieri’s overnight positions in securities were rated within the six months prior to his trading.
After participating in the misconduct reported by the SEC investigation, Bolan and Ruggieri violated Section 17(a) of the Securities Act of 1933, along with Section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5. An administrative proceeding will determine actions to be taken regarding disgorgement of ill-gotten gains, prejudgment interest, financial penalties, and other remedial measures.