Investigators have accused Wells Fargo of not providing an accurate record of its internal review of former broker Waldyr De Silva Prado Neto, who is facing criminal charges for insider trading.
Wells Fargo’s investment arm stood by while one of its brokers made stock-market trades using confidential customer information, activity that the firm hid from authorities for six months, according to the Securities and Exchange Commission.
On Monday, the regulator leveled a $5 million fine against Wells Fargo Advisors for failing to maintain adequate controls to prevent insider trading and produce internal reviews of the broker’s trades. The case marks the first time the SEC has charged a brokerage firm for failing to protect private customer information.
Wells Fargo, which declined to comment for this article, admitted wrongdoing to the SEC.
The case is rooted in the actions of former Wells Fargo broker Waldyr Da Silva Prado Neto, who is facing criminal charges for insider trading of Burger King stock.
Prado learned from a client in the spring of 2010 that Burger King was being acquired by private-equity firm 3G Capital Partners. The broker tipped off investors in his native Brazil and traded Burger King stock for a profit of $175,000.
The SEC obtained e-mails Prado sent to friends in Portuguese alerting them to the deal. In one instance, the broker passed information to banker Igor Cornelsen, who at one point e-mailed Prado to ask “is the sandwich deal going to happen,” according to the complaint against the broker. Cornelsen ultimately made $1.68 million off of the illegal trades.
The Washington Post could not reach Prado for comment or identify his attorney.
Federal prosecutors in Manhattan filed criminal charges in January against Prado and Cornelsen for securities fraud and conspiracy, charges that carry up to 20 years in prison for each count of fraud. Neither has been arrested and the case is still pending, according to the U.S. Attorney’s Office. Meanwhile, the SEC obtained a $5.6 million judgment against Prado in January.
In the course of its investigation, the SEC discovered that multiple groups within Wells Fargo were told that Prado was misusing customer information but failed to act.
When authorities asked the firm for all documents related to Prado’s trading practices, Wells Fargo withheld information on his Burger King trades. Six months after investigators requested the document, the firm produced the Burger King information without explaining why it was initially withheld, according to the complaint.
Investigators also have accused Wells Fargo of not providing an accurate record of its internal review of Prado, because one of the documents was altered.
“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.
“The firm’s actions improperly delayed our investigation, and the production of an altered document interfered with our search for the truth,” he said.
This is not the first time Wells Fargo has been enmeshed in insider-trading charges. In 2012, the SEC charged former Wells Fargo Securities banker John Femenia with using tips about impending mergers to pull in more than $11 million.
