An investment banker at Wells Fargo Securities and his longtime friend passed along insider tips on pending company mergers to friends or family members in five states that generated more than $11 million in illicit trading profits, federal regulators said Wednesday.
The Securities and Exchange Commission said John W. Femenia misused his position to trade in information about four pending mergers involving the firm's clients before the deals were announced.
Femenia did not return a call seeking comment Wednesday. He was based in Wells Fargo's Charlotte office in 2010 and 2011 when the SEC said he passed along insider information on three mergers before moving to New York.
The commission said Femenia passed inside information about an impending deal to Shawn C. Hegedus, who worked as a registered broker. Femenia and Hegedus then tipped off other friends who in turn tipped more friends or family members in North Carolina, South Carolina, Florida, California and New York.
Femenia "basically started a phone tree of nonpublic information to enrich friends and others," said William Hicks, associate director for enforcement in the SEC's Atlanta office.
Ten people were named in the civil complaint filed Wednesday by the SEC in federal court in Charlotte. Hegedus did not have a listed phone number; a message left with his father was not returned Wednesday.
The SEC's complaint said the illicit trading happened between July 2010 and July 2012, with the last merger involving the acquisition of Baton Rouge, La.-based Shaw Group by Chicago Bridge & Iron Co.
Big deals create opportunities for those who have the information first to cash in on a stock's direction before others, said David Hoyle, The Shaw Group's lead outside director and North Carolina's top tax official.
"Anytime there's some kind of merger opportunity, there's always folks that have the opportunity because they know more than somebody else," Hoyle said.
Emery Dalesio can be reached at http://twitter.com/emerydalesio