Insider Case Highlights Ties of Friends, Family; Prosecutors Allege a U.S. Couple Made More Than $1 Million on Tips From a Banker

August 11, 2013, 5:42 p.m. ET

Insider Case Highlights Ties of Friends, Family

Prosecutors Allege a U.S. Couple Made More Than $1 Million on Tips From a Banker

JEAN EAGLESHAM

Married in 2007, millionaires in 2012, fugitives in 2013—now, Shawn Hegedus and Danielle Laurenti sit in Mecklenburg County jail in North Carolina, awaiting federal trial.

In one hot week last summer, prosecutors allege, the couple made more than $1 million from insider trading, spent most of it on 550 gold bars in midtown Manhattan and laundered $100,000 in a Las Vegas casino.By the time in mid-December that a federal grand jury in Charlotte, N.C., indicted Mr. Hegedus and Ms. Laurenti, the couple had gone on the run, according to the Federal Bureau of Investigation. On June 24, he turned himself in to the U.S. authorities. The following week, she followed suit.

Mr. Hegedus and Ms. Laurenti, both 32 years old, were part of a “massive, serial insider-trading scheme” that allegedly traded illegally between July 2010 and July 2012, according to criminal and civil complaints filed in federal court in Charlotte.

The couple were among a network of nine friends and relatives who exploited inside information from a banker employed at that time by Wells FargoWFC +0.02% & Co. named John Femenia, the Securities and Exchange Commission said in a civil action.

Tips from Mr. Femenia on pending deals were passed along a “phone tree” in return for kickbacks of cash and gold, according to the SEC. The banker’s call to set the insider-trading ring in motion allegedly was typically to Mr. Hegedus, the agency said, and the two would then call other friends, who in turn would tip more friends or family members.

Messrs. Femenia and Hegedus and Ms. Laurenti pleaded not guilty to criminal charges and are facing trial. Lawyers representing them declined to comment.

Six other defendants charged criminally have agreed to plead guilty to conspiracy to commit insider trading, according to the FBI.

Wells Fargo, which hasn’t been accused of any wrongdoing, will continue to cooperate with the law-enforcement agencies, a spokesman said in a statement. The bank has “robust” procedures and training programs for the handling of confidential information and a “zero-tolerance policy” for the misuse of such information, the Wells Fargo spokesman said.

The case is one of an “increasing number…involving multiple alleged tippees” in recent years, said Adam Hakki, a partner at law firm Shearman & Sterling LLP, who declined to comment on the allegations involving the former Wells Fargo banker.

Wall Street self-regulator the Financial Industry Regulatory Authority made a record 347 referrals of possible insider trading to the SEC and other enforcement agencies last year. At least 45 criminal and civil insider-trading cases filed last year acknowledged help from Finra, according to its website.

One reason such illegal activity seems to be prevalent is that some people with access to potentially lucrative information, such as bankers and lawyers, “believe it might be easier to commit insider trading if you don’t have a professional do it himself or herself,” said Erik Gerding, a law professor at the University of Colorado in Boulder.

This apparent confidence that trading via friends and family members will fly below the radar of the Wall Street cops is generally misplaced, according to legal experts, who say regulators are getting better at spotting patterns of suspicious trading.

One of the cases Finra helped identify: the alleged phone tree involving Ms. Laurenti and Messrs. Hegedus and Femenia.

The two men had been close buddies since they attended high school together in Oakdale, N.Y., from 1995 through 1999, prosecutors said.

Insider trading wasn’t their first alleged criminal venture, according to the prosecutors. They said that, in February 2008, the two men allegedly committed mortgage fraud while buying a $1.1 million luxury home in Waxhaw, N.C.

By that time, Mr. Femenia was working for Wells Fargo. Prosecutors say his job as an investment banker gave him an opportunity to steal and sell insider information, something he allegedly did four times, starting in March 2010.

Rather than trade using the information himself, the tips were passed on to Mr. Hegedus and two other friends, the indictment said. It alleged that those friends traded on the tips, as well as passed them on to a handful of other friends and relatives, who also traded illegally.

A single week last summer illustrates how prosecutors allege Mr. Hegedus and Ms. Laurenti played crucial roles in the scheme.

On July 30, 2012, the last of the four deals allegedly tipped by Mr. Femenia—the takeover of a company called the Shaw Group by Chicago Bridge & Iron Co.CBI +0.34% —was announced.

The news sent Shaw’s stock price up 55% in a day. Mr. Hegedus and Ms. Laurenti allegedly made a profit of $1.1 million on bets they had placed on Shaw via companies they controlled, according to the SEC.

The couple then wired nearly $1 million from their companies’ bank accounts to a precious-metals dealer in midtown Manhattan, the criminal complaint said. The metals dealer hasn’t been accused of wrongdoing. A few days after the deal was announced, they turned up to collect 550 gold bars, it said.

 

An employee at the metals dealer, who didn’t want to give his name, told The Wall Street Journal that Mr. Hegedus seemed calm when he collected the gold. The gold could easily be carried away, the employee said, producing a small one-kilo bar worth more than $40,000 from a strong-room in his office to demonstrate its relatively small size.

The same day they collected the gold, Mr. Hegedus and Ms. Laurenti laundered at least $100,000 through a Las Vegas casino, the criminal complaint said, without including details of how the operation allegedly worked. The casino wasn’t accused of any wrongdoing.

From Aug. 16 through Aug. 31, Ms. Laurenti withdrew a total of $550,000 in cash from an account she controlled with her husband, according to the complaint.

It isn’t clear when the couple went on the run—a move that remains “pretty rare” for white-collar suspects, according to Adam Pritchard, a law professor at the University of Michigan—or where they went to.

Multiple attempts in December to serve legal papers on Mr. Hegedus and Ms. Laurenti in New York and Miami were unsuccessful, according to court documents. One of the people trying to trace the couple said that a relative of Mr. Hegedus told him the fugitive was “not in Panama but on American soil.” Earlier this summer, they turned themselves in.

Now the couple and Mr. Femenia face criminal charges relating to alleged insider trading, securities fraud, wire fraud and money laundering, which carry maximum penalties, if convicted, of as many as 20 years in prison. Messrs. Hegedus and Femenia have also been charged with bank fraud, which carries a maximum penalty of up to 30 years in prison. The trial is due to start in October.