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Judge dismisses SEC action against former Wells Fargo compliance officer

A former Wells Fargo compliance officer who allegedly altered a document before giving it to the SEC during an investigation won dismissal of her case Wednesday after an administrative law judge refused to sanction her.

Judge Cameron Elliot said imposing sanctions against Judy K. Wolf would create the “misperception” that Wolf had acted alone.

“That is, if Wolf is sanctioned,” Judge Elliot said, “there is a likelihood that others in the industry will perceive Wolf as simply a bad apple, a low status worker who unilaterally caused Wells Fargo to violate the law, and will see no need to examine their own practices and corporate cultures.”

“Wells Fargo clearly had much deeper and more systemic problems than one bad apple,” Elliot said.

The SEC brought an enforcement action against Wolf in October 2014.

She was responsible for identifying potentially suspicious trading by Wells Fargo personnel and its customers and clients, and then analyzing whether the trades may have been based on inside information.

According to the SEC, she created a document in September 2010 to summarize her review of a particular Wells Fargo broker’s trading, and she closed her review with no findings.

Wolf altered that document in December 2012 after the SEC charged the broker with trading based on material nonpublic information, the SEC said.

By altering the document, “Wolf made it appear that she performed a more thorough review in 2010 than she actually had,” the SEC said.

Wells Fargo provided the document to the SEC as part of the agency’s investigation. The agency’s enforcement staff spotted the alteration and questioned Wolf specifically about it.

“At first she unequivocally denied altering the document after September 2010, but in later testimony she testified that she had done so,” the SEC said in October.

Wells Fargo agreed to pay $5 million to settle the insider trading case and other securities law violations.

The bank placed Wolf on administrative leave and ultimately fired her, the SEC said.

The enforcement action against Wells Fargo involved Waldyr Da Silva Prado Neto. He worked for Wells Fargo Advisors in a branch office in Miami.

In September 2012, the SEC charged Prado with trading Burger King stock based on nonpublic information about a plan by 3G Capital Partners to buy the company and take it private. The SEC alleged that Prado and at least three customers he tipped traded the stock through Wells Fargo Advisors brokerage accounts.

Prado and his tippees made total profits of more than $2 million from the trades, the SEC said.

The SEC obtained a $5.6 million default judgment against Prado in January 2014.

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Judge Cameron Elliot’s decision of August 5, 2015 In the Matter of Judy K. Wolf, SEC Administrative Proceeding File No. 3-16195, is here (pdf).

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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