SEC Charges Wells Fargo Analyst, Trader With Insider Trading
Analysts reports frequently move the market and are thus considered inside information prior to publication. That is the predicate for an SEC administrative proceeding which charges a Wells Fargo analyst and trader with insider trading. In the Matter of George T. Bolan, Jr., Adm. Proc. File No. 3-16178 (September 29, 2014).
George Bolan was a research analyst in the Wells Fargo research department in Nashville, Tennessee. He was also a registered representative. His research focused on the health care industry: contract research organizations, health care information technology and life science tools.
Respondent Joseph Ruggieri was a senior trader of health care stocks in Wells Fargo’s trading department in New York from August 2009 to April 2011. He was also a registered representative, executing customer transactions and placing principal trades on behalf of Wells Fargo. He was paid 6% of the monthly net profit and loss in his firm trading account. He also received a salary and 5% of the commissions he generated on a monthly basis.
Messrs. Bolan and Ruggieri are friends. At one point Mr. Ruggieri and his manager at Wells Fargo provided positive feedback to Mr. Bolan’s managers at the firm which helped him obtain a promotion.
Mr. Bolan was a well-respected analyst in the areas he covered. Institutional Investor publications named him “Best up and Comer” in 2010. The department viewed him as a rising star. He also understood that the impact of his ratings and that they moved markets. In an e-mail exchange between the two men Mr. Ruggieri noted in referencing one of Mr. Bolan’s research notes that “’[s]till moving stock.”
Between April 2010 and March 2011 Mr. Bohan published eight ratings changes or initiations of coverage with an outperform or underperform rating. Mr. Ruggieri traded in advance of six of them, according to the Order. In each instance the Order alleges that the Mr. Bohan after completing his assessment of the firm, and before the publication of the report, “communicated, in words or substance, material nonpublic information . . .” to Mr. Ruggieri. In some instances the Order alleges that after Mr. Bohan’s supervisor signed off on the report there was a phone call between the two men. In each instance Mr. Ruggieri traded in advance of the public distribution of the report.
Following the publication of the six reports the volume and/or the stock price increased or decreased, depending on the rating. Overall Mr. Ruggieri had over $117,00 in trading profits. Mr. Bolan is alleged to have benefited from the illegal tipping because of the friendship between the two men and from the recommendation that assisted him in obtaining a promotion.
The Order also alleges that Mr. Bolan tipped Trader A in one instance in May 2010 who traded profitably. Trader A was a friend of Mr. Bolan’s who has since passed away.
Wells Fargo compliance procedures prohibited analysts from furnishing information about their reports to others prior to publication. Traders were also precluded from using such information. Both Mr. Bohan and Mr. Rugieri attended compliance meetings where power points were used to establish these points. Firm policy also precluded trading on inside information.
The Order alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The proceeding will be set for hearing.