Tag: Judy K. Wolf

Judy Wolf did a bad thing. During an insider trading investigation she fudged some documents. The Securities and Exchange Commission investigated the insider trading matter and Ms. Wolf’s log of her review. The fudging was discovered. She was fired and the SEC brought an enforcement against her.

There is some good news from that bad situation. An administrative law judge just dismissed the enforcement case against Ms. Wolf.

Last year, Wells Fargo paid $5 million to resolve the insider trading case that involved the acquisition of Burger King. Ms. Wolf was a compliance professional at Wells Fargo. She conducted an inquiry of trades related to the $3.3 billion Burger King acquisition by 3G Capital in 2010. The SEC launched its insider trading investigation in 2012. Wolf apparently was concerned that her compliance log was inadequate. She went back and added these two sentences:

“Rumors of acquisition by a private equity group had been circulating for several weeks prior to the announcement. The stock price was up 15% on 9/1/12, the day prior to the announcement.”

She fudged the log poorly and wrote “2012” instead of “2010.” Under questioning by the SEC she thought the change would not be discovered. Wells pulled up the document metadata and found the problem.

After the settlement with Wells Fargo, the SEC brought charges against Wolf.

SEC ALJ Cameron Elliott dismissed the enforcement action sanctions. The judge did not condone the action, but found that Wolf willfully aided and abetted and caused Wells Fargo’s violations of Exchange Act Section 17(a) and Rule 17a-4(j) and Advisers Act Section 204(a). Wolf should have known that it was improper to alter compliance records.

There is one additional consideration: the fact that Wolf worked in compliance. Obviously, compliance professionals are subject to the securities laws like everyone else. … In my experience, firms tend to compensate compliance personnel relatively poorly, especially compared to other associated persons possessing the supervisory securities licenses compliance personnel typically have, likely because their work does not generate profits directly. But because of their responsibilities, compliance personnel receive a great deal of attention in investigations, and every time a violation is detected there is, quite naturally, a tendency for investigators to inquire into the reasons that compliance did not detect the violation first, or prevent it from happening at all. The temptation to look to compliance for the “low hanging fruit,” however, should be resisted. There is a real risk that excessive focus on violations by compliance personnel will discourage competent persons from going into compliance, and thereby undermine the purpose of compliance programs in general. That is, “we should strive to avoid the perverse incentives that will naturally flow from targeting compliance personnel who are willing to run into the fires that so often occur at regulated entities.” Comm’r Daniel M. Gallagher, Statement on Recent SEC Settlements Charging Chief Compliance Officers With Violations of Investment Advisers Act Rule 206(4)-7 (June 18, 2015), available at http://www.sec.gov/news/statement/sec-cco-settlements-iaa-rule-206-4-7.html (last accessed July
7, 2015).

A good result for compliance professionals.

Sources:

• In the Matter of Judy K. Wolf (.pdf)
• Case against fired compliance officer dismissed as ALJ sends Enforcement a message
• Don’t Forge Documents You Give to SEC Investigators
• No Language Barrier to Prosecuting Insider Trading

You’re bound to make a mistake. Don’t make the mistake even worse by faking a document you submit to the Securities and Exchange Commission in order to cover your original mistake.

Back in 2012, the SEC brought charges against Waldyr Da Silva Prado Neto, a citizen of Brazil who was working for Wells Fargo in Miami. He was accused of illegally trading in the stock of Burger King after he learned of an impending private equity transaction.

Wells Fargo admitted to compliance weaknesses and paid a $5 million fine in connection with that supervision failure. In connection with that failure’s administrative order, the SEC expressed its displeasure with a delay in production of the documents and the state of the documents.

When the documents were produced, the firm failed to produce an accurate record of the review as it existed at the time of the staff’s request. Instead, the firm produced a document that had been altered by an employee after the Commission staff issued its follow up request. When questions arose surrounding the altered document, Wells Fargo Advisors placed the employee on administrative leave and eventually terminated this employee.

• Prado and his customers represented the top four positions in Burger King securities firm-wide;
• Prado and his customers bought Burger King securities within 10 days before the acquisition announcement, including on the same days;
• The profits by Prado and his customers each exceeded the $5,000 threshold specified in the look back review procedures;

What did her in was an additional note in the log:

“09/02/10 opened 24% higher@ $23.35 vs. previous close of $18.86. Rumors of acquisition by a
private equity group had been circulating for several weeks prior to the announcement. The
stock price was up 15% on 9/1/12, the day prior to the announcement.” (My emphasis)

Wolf made a typo on the announcement date. According to the order, she argued that it was merely a contemporaneous type, but admitted in later testimony that she had made that additional log note after the SEC investigation. Wells Fargo was able to produce earlier copies of the log that did not have those two sentences.

Wolf tried covering her mistake, but it blew up into a bigger problem. Wells Fargo fired her and the SEC brought charges against her personally.

Sources:

• SEC Announces Enforcement Action Against Former Wells Fargo Advisors Compliance Officer for Altering Document
• SEC order against Judy K. Wolf
• No Language Barrier to Prosecuting Insider Trading
• Wells Fargo Advisors Admits Failing to Maintain Controls and Producing Altered Document, Agrees to Pay $5 Million Penalty