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P R E S S   R E L E A S E

FOR IMMEDIATE RELEASE:

Dec. 5, 2012


SEC Charges 10 in Insider Trading Ring Around Investment Banker's Illegal Tips on Impending Mergers

Washington, D.C., Dec. 5, 2012 The Securities and Exchange Commission today charged an investment banker who was primarily based in Charlotte, N.C., and nine others involved in an insider trading ring that garnered more than $11 million in illicit profits trading on confidential information about impending mergers.

The SEC alleges that John W. Femenia misused his position at Wells Fargo Securities to obtain material, nonpublic information about four separate merger transactions involving firm clients. Upon learning inside information about an impending deal, Femenia's first call to set the insider trading ring in motion was typically to his longtime friend Shawn C. Hegedus, who worked as a registered broker. Femenia and Hegedus illegally tipped other friends who in turn tipped more friends or family members in a ring that spread across five states.

The SEC has obtained a court order freezing the assets of the illegal traders.

"Here you have an investment banker who clearly knew better that inside information can't form the basis of trading decisions," said William P. Hicks, Associate Director for Enforcement in the SEC's Atlanta Regional Office. "Instead he basically started a phone tree of nonpublic information to enrich friends and others."

According to the SEC's complaint filed in U.S. District Court for the Western District of North Carolina, Femenia was based in Wells Fargo's Charlotte office when most of the misconduct occurred, but later moved and worked in New York where he currently resides. Femenia's tippees included his friends Aaron M. Wens, who lives in Encinatas, Calif., and Matthew Musante, who lives in Miami. Musante tipped his father Anthony Musante, who lives in Melbourne, Fla. Hegedus tipped his girlfriend Danielle Laurenti and his business colleague Roger A. Williams, who lives in Georgetown, S.C. Williams tipped three of his friends: Frank M. Burgess, Jr. of Charlotte, James A. Hayes IV of Charlotte, and Kenneth M. Raby of Greer, S.C.

According to the SEC's complaint, the illegal trading occurred from July 2010 to July 2012 and involved the following transactions:
  • The acquisition of ATC Technology Corporation by GENCO Distribution Systems (publicly announced July 19, 2010)

  • The acquisition of Smurfit-Stone Container Corp. by Rock-Tenn Company (publicly announced Jan. 23, 2011)

  • The acquisition of K-Sea Transportation Partners by Kirby Corporation (publicly announced March 13, 2011)

  • The acquisition of The Shaw Group by Chicago Bridge & Iron Co. (publicly announced July 30, 2012)

According to the SEC's complaint, Femenia's tips enabled profitable trades in the stock and options of the companies being acquired in the deals, and at least one trader provided a portion of his profits to Femenia in exchange for the information. Some downstream tippees also kicked back a portion of their profits.

The SEC's complaint alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. At the SEC's request, The Honorable Graham C. Mullen entered a temporary restraining order freezing the assets of the defendants and relief defendants. The court order also provides for expedited discovery and prohibits the defendants and relief defendants from destroying evidence.

The investigation was conducted in the SEC's Atlanta Regional Office by Staff Attorney Monifa F. Wright under the supervision of Assistant Regional Director Matthew F. McNamara. Paul T. Kim and Pat Huddleston will lead the litigation.

The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of North Carolina, the Federal Bureau of Investigation, the Financial Industry Regulatory Authority (FINRA), and the Options Regulatory Surveillance Authority (ORSA).


Source: United States Securities and Exchange Commission


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