SEC Loses Key Insider Trading Case Against Wells Fargo Trader


Last week, the SEC was handed its first ever loss in an insider trading case handled by an administrative law judge in its case against a former Wells Fargo trader accused of profiting from tips provided by one of the bank’s research analysts.

Background of the Case

In September 2014, the Securities Exchange Commission filed administrative charges against Joseph C. Ruggieri, a former trader at Wells Fargo, for reportedly receiving insider tips from Gregory T. Bolan Jr., a former securities analyst at Wells Fargo, about ratings changes on six health care companies Bolan covered before they were made public.  Mr. Bolan was also charged.

Mr. Ruggieri purportedly traded on these tips right before the announcement of Bolan’s new ratings, generating approximately $117,127 in profits for Wells Fargo. Mr. Bolan settled his case by agreeing to pay a $75,000 civil penalty, while neither admitting nor denying guilt.  Mr. Ruggieri’s case proceeded to a two-week hearing presided over by administrative Judge Jason S. Patil.

Judge Patil’s Ruling

In his 50-page decision, Judge Patil dismissed the insider trading claims against Ruggieri, saying that although the SEC showed that Ruggieri had traded on Bolan’s tips four times, they did not meet their burden of proving that Bolan gave Ruggieri information in exchange for a personal benefit, as required by the Second Circuit’s U.S. v. Newman ruling and the Supreme Court’s 1983 opinion in Dirks v. SEC.

Judge Patil said he was not convinced by the SEC’s claims that the “mentorship and positive feedback” Ruggieri gave Bolan amounted to benefits in exchange for tips.  The judge pointed out that Ruggieri had provided positive feedback about Bolan both before and after he had provided the tips, and that Bolan’s own supervisor rejected the notion that Ruggieri’s praise was part of any quid pro quo arrangement.

Judge Patil noted that the record showed Bolan had a “long-standing disregard of compliance rules” when it came to disclosing nonpublic information without preclearance from Wells Fargo.  For example, in April 2011 hedge fund SAC Capital Advisors alerted Wells Fargo’s  compliance department about one of Bolan’s inappropriate tips.

Judge Patil wrote, “Although Bolan made improper disclosures to a few select clients, none of the cited instances establish that he did so for personal gain or to further career prospects. Bolan’s failings, however imprudent, do not establish a personal benefit within the meaning of Dirks.”

In the end, Judge Patil concluded that the SEC had not met its burden of proof that Bolan had received a personal benefit from Ruggieri, thereby establishing this required element for an “insider trading” charge to be successful.

The SEC’s enforcement division can still appeal Judge Patil’s ruling in the next 21 days. The initial decision requires the commission itself to act before the decision becomes final.  The case is “In the Matter of Gregory T. Bolan Jr. and Joseph C. Ruggieri”, case number 3-16178, before the U.S. Securities and Exchange Commission.

Our Take

The SEC’s surprising loss in the Ruggieri insider trading case is bad news for the commission for a number of reasons.  First, it is generally accepted that the SEC has a “home court advantage” when bringing its enforcement actions before administrative law judges versus in Federal District Courts.  Patil’s decision in the Ruggieri case marks the first time the SEC has ever lost an insider trading case before an administrative law judge.

However, probably more damning is the fact that in his decision, Judge Patil concluded that in the landmark Newman case, the appeals court did not significantly alter the insider trading analysis that was initially established in the Dirks decision.  Patil wrote, “I do not, however, read Newman as conflicting with Dirks, but rather as clarifying the standard where proof of a personal benefit is based on a personal relationship or friendship.”

Ultimately, this means that in his decision, Judge Patil publicly made an argument AGAINST the government’s rationale for the Supreme Court to take up its request to rule on the 2nd US Circuit Court of Appeals’ decision in the Newman case. While we are not convinced the Supremes will use Patil’s findings to keep it from taking up the Newman case, it certainly can’t give the government any sense of confidence that they have a compelling argument.


About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email:

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