CHARLOTTE, NC—A federal indictment unsealed today in U.S. District Court charged nine defendants in Charlotte and elsewhere with insider trading and money laundering, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina. The charges in the indictment arise from the Charlotte-based FBI investigation, Operation Insider Out, which began in early 2012 and identified targets involved in insider trading activities in the Charlotte area.
Roger A. Coe, Acting Special Agent in Charge of the FBI, Charlotte Division, joined U.S. Attorney Tompkins in making today’s announcement.
The federal criminal indictment was returned by a federal grand jury in Charlotte on Wednesday, December 12, 2012, and was unsealed today following the arrest of the lead defendant, John Femenia. Six other defendants named in the indictment have agreed to plead guilty to the charges against them. The indictment alleges that from about March 2010 through December 2012, the defendants were members of an insider trading conspiracy that stole material non-public information, including information about upcoming corporate mergers and acquisitions, from Wells Fargo and its clients and used that information to conduct illegal insider trading. Stealing material non-public inside information allows a trader to cheat and earn substantial profits by trading before such news becomes public, earning substantial profits by trading again once the news becomes public and impacts the price of a stock. The indictment alleges that the criminal conspiracy netted over $11 million in proceeds as a result of the illegal insider trading activities.
The indictment charges Femenia, 31; Shawn C. Hegedus, 32; and Danielle C. Laurenti, 31, all of New York, with conspiracy to commit insider trading, conspiracy to commit wire fraud, securities fraud, and money laundering. Femenia and Hegedus are also charged with bank fraud. Femenia was arrested this morning in New York and is expected to be released on bond conditions following his initial appearance in U.S. District Court. Hegedus and Laurenti are currently fugitives.
The remaining six defendants named in the indictment, Matthew J. Musante, 32, of Miami; Aaron M. Wens, 32, of Encinitas, California; Roger A. Williams, 51, of Georgetown, South Carolina; Kenneth M. Raby, 50, of Greer, South Carolina; Frank M. Burgess, Jr., 42, of Charlotte, North Carolina; and James A. Hayes, 38, also of Charlotte, have agreed to plead guilty to conspiracy to commit insider trading. Their individual plea agreements have been filed, and the defendants will appear upon a summons for their initial appearances and plea hearings on a date set by the court.
According to allegations contained in the indictment, Femenia, an investment banker who lived in Charlotte and New York, stole material, non-public information from his employer, Wells Fargo, and its clients about potential and upcoming mergers and acquisitions. The indictment alleges that Femenia provided the inside information to co-conspirators who traded on the information. These co-conspirators then passed the confidential inside information to other co-conspirators who also traded on that information, the indictment alleges. In total, the co-conspirators made over $11 million in profits when news of the mergers and acquisitions finally became public.
The indictment further alleges that Femenia was paid kickbacks for the stolen information in several forms. For example, according to the indictment, Hegedus, who was a stockbroker and Femenia’s high school friend, bought 550 gold bars with proceeds of the insider trading. Femenia then sold four of the gold bars for $70,877 to a precious metals dealer in Oklahoma. According to allegations contained in the indictment, Femenia also received kickbacks in cash, including by co-conspirators making cash deposits by ATM into an account in the name of Femenia’s girlfriend. The indictment also alleges that co-conspirators Hegedus and Laurenti laundered proceeds of the insider trading through a casino in Las Vegas. The indictment further alleges that Femenia and Hegedus engaged in mortgage fraud through the fraudulent purchase of a luxury home in Waxhaw, North Carolina.
The conspiracy to commit insider trading charge carries a maximum term of five years in prison and a $250,000 fine. The conspiracy to commit wire fraud charge carries a maximum term of 20 years in prison and a $250,000 fine. The securities fraud charge carries a maximum term of 20 years in prison and a $250,000 fine. The bank fraud charge carries a maximum term of 30 years in prison and a $1,000,000 fine. The money laundering conspiracy charge carries a maximum term of 20 years in prison and a $250,000 fine, or a fine of twice the amount of criminally derived proceeds.
An indictment is merely an allegation, and the defendants are presumed innocent unless and until proven guilty beyond reasonable doubt in a court of law. In addition, the agreement to plead guilty by any other person is not relevant to the guilt of any indicted person.
In announcing the insider trading indictment, U.S. Attorney Tompkins praised the investigative work of the FBI in Charlotte and thanked the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and Wells Fargo for their assistance.
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