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December 7, 2012

LITIGATION AND ENFORCMENT

ENFORCEMENT-SEC Charges 10 in Insider Trading Ring Capitalizing on Information Regarding Impending Mergers

By Amy Leisinger, J.D.

The SEC has charged a North Carolina-based investment banker and nine others involved in an insider trading ring that garnered more than $11 million in illicit profits by trading on confidential information about impending mergers.

In its complaint, the SEC alleged that John W. Femenia misused his position at the Wells Fargo Securities office in Charlotte, North Carolina, to obtain material, nonpublic information about four separate merger transactions involving firm clients. According to the SEC, in his position, Femenia became aware of and/or had access to highly confidential and material information concerning each of the business combinations prior to their public disclosures. Upon learning inside information about an impending deal, Femenia allegedly contacted his long-time friend Shawn C. Hegedus, a registered broker.

According to the Commission, Femenia and Hegedus illegally tipped other friends who in turn tipped more friends or family members, creating an insider trading ring that spread across five states. The tippees included Femenia's friends, Aaron M. Wens and Matthew Musante, who allegedly tipped his father Anthony Musante. Hegedus allegedly tipped his girlfriend Danielle Laurenti and his business colleague Roger A. Williams, who then allegedly tipped three of his friends: Frank M. Burgess, Jr., James A. Hayes IV, and Kenneth M. Raby.

In connection with the individuals, the SEC also charged two companies with ties to Hegedus or Laurenti that were involved in the illegal trading: Coram Real Estate Holdings Inc. and GoldStar P.S. The SEC further charged two others, Femenia's girlfriend Kristine Lack and Anthony Musante's wife Christine Musante, as relief defendants for the purposes of recovering illicit profits in their possession.

According to the SEC's complaint, the illegal trading occurred from July 2010 to July 2012 and specifically involved material, nonpublic information regarding the acquisitions of: (1) ATC Technology Corporation by GENCO Distribution Systems; (2) Smurfit-Stone Container Corp. by Rock-Tenn Company; (3) K-Sea Transportation Partners by Kirby Corporation; and (4) The Shaw Group by Chicago Bridge & Iron Co. The SEC alleges that Femenia's tips enabled profitable trades in the stock and options of the companies being acquired and that certain parties involved in the scheme kicked back a portion of their profits in exchange for the information. According to the SEC, Femenia was fully aware of Wells Fargo Securities' detailed standards of conduct proscribing insider trading, and knew, or was reckless in not knowing, that he owed a fiduciary duty to Wells Fargo Securities and its clients to not disclose or misappropriate the material, nonpublic information he learned through his employment.

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 order also prohibits the defendants and relief defendants from destroying evidence.

Enforcement FraudManipulation NorthCarolinaNews

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