In two cases filed this week as the SEC's fiscal year 2014 comes to a close, the SEC delivered a sharp reminder to financial analysts (and their friends!) that market-moving ratings changes by financial institutions need to remain confidential until they are publicly announced. The cases, filed in a span of 48-hours, both involved traders who were tipped off by analysts about imminent ratings changes in advance of the public announcement, and who then allegedly used that information to trade and profit.

 

In a case filed yesterday, the SEC announced an action against two former Wells Fargo employees. The SEC alleged that Gregory T. Bolan Jr., then a research analyst at Wells Fargo, tipped a Wells Fargo trader named Joseph C. Ruggieri in advance of several market-moving ratings upgrades or downgrades that he made in certain securities. Ruggieri allegedly then traded based on this information in advance of six separate research reports, generating more than $117,000 in profits. Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, called the pair's repeated conduct "an utter disregard for our insider trading laws.”

Today, the SEC filed a similar case against two individuals for insider trading based on inside information that prominent hedge fund manager William Ackman of Pershing Square Management would soon be announcing (a) a negative, market-moving view of Herbalife Ltd., and (b) that he had taken a $1 billion short position in its securities. According to the SEC, an unnamed Pershing analyst with knowledge of Ackman's imminent announcement told his roommate, Filip Szymik, about the announcement. Szymik, in turn, allegedly shared this information with Jordan Peixoto, a research analyst at Deloitte in New York, and Peixoto used the information to make $47,100 in illicit profits.

Although Szymik did not trade, the SEC's Wadhwa emphasized that both "Szymik and Peixoto chose to engage in illicit tipping and trading in advance of the announcement of market-moving information and today they are being held accountable for those offenses.”

 

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