The SEC slammed Wells Fargo Advisors with a $5 million penalty for failing to maintain adequate controls to prevent one of its brokers from trading on insider information, the regulator announced on Monday.
The broker, Waldyr Da Silva Prado Neto, a Brazilian citizen working for Wells Fargo in Miami, traded on a tip from a customer that Burger King was being acquired by a New York-based private equity firm, according to the SEC. Prados insider trading in Burger King stock allegedly occurred from May 17 to Sept. 1, 2010, the SEC said.
The SEC charged that the various groups responsible for compliance and supervision within Wells Fargo lacked coordination and failed to act on indications that the broker was misusing customer information, in defiance of federal laws requiring broker-dealers and investment advisors to establish, maintain and enforce policies and procedures to prevent misuse of material, nonpublic information.
"When investors entrust private information to their stockbrokers or investment advisors, they have the right to expect that it will not be exploited," Andrew J. Ceresney, director of the SEC's Enforcement Division, said in a statement.
The case was the first the SEC has brought against a broker-dealer for failing to protect a customer's nonpublic information, the regulator said. The broker was charged separately for insider trading on Saturday.
The SEC also charged Wells Fargo for delaying its production of documents during the SEC's investigation and providing an altered internal document related to a compliance review of the broker's trading, the SEC said.
"The firm's actions improperly delayed our investigation, and the production of an altered document interfered with our search for the truth," Daniel M. Hawke, chief of the SEC Enforcement Division's Market Abuse unit, said in a statement.
Anthony Mattera, a spokesperson for Wells Fargo Advisors, declined to comment on the SEC's action against the firm.