Market professionals continue to be the focus of insider trading actions. This time it is an associate in the Investment Banking Group of Wells Fargo Securities, John W. Femenia, who is alleged to be at the center of a ten person, serial insider trading ring. SEC v. Femenia, Civil Action No. 3:12 cv 803 (W.D. N.C. Filed Dec. 5, 2012). Mr. Femenia was resident in the Charlotte office for three of the four deals involved in the action and in the New York City office at the time of the last transaction.

Other defendants include: Shawn Hegedus, a registered representative and long time friend of Mr. Femenia who is alleged to have been tipped by him; Aaron Wens and Matthew Musante, two other friends alleged to have been tipped by Mr. Femena; Anthony Musante, father of Matthew, also alleged to have been tipped by Mr. Femena; Danielle Laurenti, the girlfriend of Mr. Hegedus who is alleged to have tipped her along with four of his business colleagues, Roger Williams, James Hayes Iv, and Kenneth Raby.

The case centers on four take-over transactions in which Wells Fargo was involved:

  • The acquisition by GENCO Distribution Systems of ATC Technology Corporation, announced on July 19, 2010;
  • The purchase by Rock-Tenn Company of Smurfit-Stone Containers Corporation announced on January 23, 2011;
  • The acquisition of K-Sea Transportation Partners by Kirby Corporation, announced on March 13, 2011; and
  • The purchase of The Shaw Group by Chicago Bridge & Iron Company, announced on July 30, 2012.

While Mr. Femenia is alleged to have been the ultimate source of information on each transaction, there is no allegation in the complaint that he worked on any of the four deals. Rather, the complaint makes vague statements claiming that he learned about the deals through his work or misappropriated the inside information. For example, in discussing the GENCO-ATC transaction the complaint alleges that “Sometime between December 2009 and March 2010, Femenia learned about the potential acquisition of ATC –either in the course of his duties as an employee of Wells Fargo Securities or through the misappropriation of such information from a Wells Fargo Securities colleague and/or confidential documents.” At the same time, Mr. Femenia was not resident in the same Wells Fargo office for all of the deals, according to the complaint.

Likewise, many of the supporting details about the ring participants are based on “information and belief” with, at times, few supporting details. The complaint does recite repeated trading, at times in options, and phone calls involving various participants.

The ring participants are alleged to have netted about $11 million in illegal profits. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation.