A Wells Fargo Securities banker who worked in Charlotte has been charged by the Securities and Exchange Commission with orchestrating an $11 million insider trading scheme that lasted through this summer, the commission said Wednesday.
John Femenia, 30, allegedly used his position as an investment banker to find out nonpublic information on four pending merger transactions, according to the lawsuit filed in the federal court in Charlotte.
He then tipped off friend and broker Shawn Hegedus, 31, of Mt. Sinai, N.Y., who in turn passed the information to other friends, the suit states. Hegedus and eight others who allegedly received trading tips also were charged.
Here you have an investment banker who clearly knew better that inside information cant form the basis of trading decisions, said William Hicks, associate director for enforcement in the SECs Atlanta office, in a statement. Instead he basically started a phone tree of nonpublic information to enrich friends and others.
Femenia lived in the Charlotte area when much of the insider trading took place, the SEC said, but moved to New York in May.
At least one person who received tips allegedly kicked back a portion of the profits to Femenia.
Wells Fargo found out about the charges Tuesday and immediately placed Femenia on leave, a spokeswoman said.
As the SEC noted in its complaint against Mr. Femenia, Wells Fargo has detailed policies and training programs on the handling of confidential information, and we have a zero-tolerance policy for the misuse of such information, the bank said in a statement. Wells is fully cooperating with the SEC in the suit.
How it worked
The first instance of insider trading described in the SECs suit illustrates the tangled web of friendships, relationships and business partnerships that tied together the 10 people charged.
Logistics companies GENCO Distribution System Inc. and ATC Technology Corp. signed a confidentiality agreement in December 2009 to pursue a merger of the two firms. Wells Fargo was tapped to provide some financing on the deal, and some bankers found out about the plans that same month.
Femenia found out about the proposed merger between December 2009 and March 2010, according to the suit.
On March 26, Femenia called Hegedus. The two became friends at an Oakdale, N.Y., high school in the late 1990s. In 2008, Hegedus helped Femenia buy a $1.1 million home in Waxhaw.
An hour after hearing from Femenia, Hegedus spoke by phone with business colleague Roger Williams of Georgetown, S.C. Thirteen minutes later, Williams began buying ATC stock. Soon after, Hegedus began buying ATC stock as well, the suit states.
Three days later, Williams met with one of his close friends, Frank Burgess Jr. of Charlotte. Burgess then began buying ATC stock. A week after that, Williams spoke with another close friend, Kenneth Raby of Greer, S.C., who then began buying ATC shares.
In May, Femenia called his friend Aaron Wens, who began buying ATC stock. During a May phone call, Wens agreed to kick back some of the profits to Femenia, the SEC suit alleges.
When the two companies publicly announced the merger in July 2010, ATC stock jumped 39 percent.
Hegedus and his girlfriend and business partner Danielle Laurenti exercised call options on the stock. The other people involved sold their shares.
A similar pattern unfolded in the 2011 purchase of Smurfit-Stone Container Corp. by Rock-Tenn Co.; the 2011 acquisition of K-Sea Transportation Partners by Kirby Corp.; and the 2012 purchase of The Shaw Group by Chicago Bridge & Iron Co., according to the SEC suit.
In the other deals, Femenias friend Matthew Musante and his father Anthony Musante also were involved, according to the suit.
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