Trader Pushes Back on SEC's Insider Liability Theory

By Rob Tricchinelli

Feb. 17 — A former Wells Fargo trader hit back at the Securities and Exchange Commission over its interpretation of recent insider trading cases, in an attempt to fend off an internal appeal of an administrative law judge's dismissal of the case against him.

The SEC's Enforcement Division alleged that respondent Joseph Ruggieri traded on tips from coworker Gregory Bolan Jr., but the ALJ dismissed allegations against Ruggieri and the division appealed.

In response, Ruggieri countered that the SEC hadn't proved he shared a “meaningfully close personal benefit” with Bolan to satisfy United States v. Newman requirements for insider-trading liability, according to a document obtained Feb. 17 by Bloomberg BNA.

Dismissed

ALJ Jason Patil dismissed the in-house action in September, a decision the enforcement division has appealed to the commission as it wrangles with the consequences of the U.S. Court of Appeals for the Second Circuit's Newman decision.

Patil held that the agency couldn't prove Bolan, who allegedly gave Ruggieri inside information, received a personal benefit for passing it along.

‘No Evidence.'

In its internal appeal, the Enforcement Division argued that the two men's relationship was close enough to satisfy Newman because of the strong implication of a personal benefit.

Ruggieri countered by calling the SEC's “theory of personal benefit” an “absurdity” in his Feb. 10 brief.

He said that implication couldn't create a meaningfully close personal relationship even though Ruggieri was Bolan's superior at Wells Fargo.

“Ruggieri's positive feedback had a negligible impact on Bolan's bonus, and the undisputed evidence was that Bolan would have been promoted regardless of any feedback from the trading desk, let alone from Ruggieri directly,” he argued in a brief not yet posted to the SEC's website. “Finally, there was no evidence that Bolan intended to benefit Ruggieri by gifting him with inside information.”

‘Tip.'

Ruggieri also asked the commission to overturn the ALJ's findings of fact that the information passed from Bolan to Ruggieri was even a “tip.”

Bolan previously settled related allegations by the SEC.

Ruggieri is represented by Serpe Ryan LLP in New York.

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com