Ex-Wells Fargo banker, 3 others sentenced in insider trading case

Published: Feb. 14, 2015 at 3:46 AM EST|Updated: Mar. 16, 2015 at 2:46 AM EDT
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CHARLOTTE, NC (Rick Rothacker/The Charlotte Observer) - A federal judge on Friday sentenced a former Wells Fargo banker to five years in prison for his role in an insider trading ring that prosecutors said netted participants more than $11 million and garnered national attention.

U.S. District Judge Robert Conrad also sentenced three of John Femenia's co-conspirators, handing the longest sentence to a high school friend of the ex-banker who received 10 years.

Shawn Hegedus, who traded on stock tips provided by Femenia, fled to Cuba when he first learned of the investigation, and prosecutors said in court they still haven't accounted for about $750,000 in gold bars that he bought.

Conrad said the sentences were an "adequate deterrent for a difficult-to-detect crime." The judge noted that Hegedus had engaged in other criminal acts, including mortgage fraud and drug dealing, and fled in the face of prosecution.

The charges stemmed from a 2012 investigation called "Operation Insider Out" that targeted insider trading in the Charlotte area. Federal authorities have pursued a string of high-profile insider trading cases in recent years, and the Charlotte prosecution highlighted activity taking place beyond Wall Street.

During a more than three-hour hearing, Assistant U.S. Attorney Kurt Meyers called the case "extremely significant." As an insider who used Wells Fargo's computer system to access information about impending mergers and acquisitions, Femenia "breached the trust," he said.

Femenia apologized in court and said he was trying to move on with his life. He has since married and has been managing a gym. "Pure stupidity" led to greed, he said, in explaining his actions.

The conspiracy

According to court records, Femenia, 33, used his position at Wells Fargo to find out about upcoming acquisitions the bank was advising on, then tipped off friends so they could buy stock in the companies involved.

The trading ring made money when the deals were publicly announced, leading the companies' stocks to rise. Femenia received kickbacks in cash and gold bars, according to court records.

Femenia passed confidential information to Hegedus; Hegedus' wife, Danielle Laurenti; and another friend Matthew Musante, according to court records. Hegedus and Musante later passed tips to others, some of whom were also prosecuted, according to court records.

Prosecutors have said the insider trading lasted from March 2010 to December 2012. Much of the alleged insider trading occurred while Femenia worked in Charlotte. He later moved to New York and now lives in Connecticut.

Conrad on Friday sentenced Laurenti, 34, to the time she has served in prison – about 19 months – with prosecutors citing her cooperation in the case. Her attorney, Julia Mimms, said Laurenti's actions stemmed from a "marriage to a bad guy" and that she plans to divorce.

She fled to Cuba with Hegedus, also 34, but later urged him to return, Mimms said.

The fourth defendant appearing before Conrad on Friday, Musante, 34, received a sentence of 3 1/2 years.

Femenia, Hegedus and Musante had pleaded guilty to insider trading and money laundering conspiracy charges. Laurenti had pleaded guilty to one count of insider trading conspiracy.

In January, Musante's attorney, David Rudolf, filed a motion to withdraw Musante's guilty plea, saying a former lawyer did not advise his client of a potential defense and that there wasn't sufficient evidence against him. Conrad denied a motion to continue his sentencing. Rudolf indicated Friday that he would appeal.

Flight to Cuba

Friday's hearing shed new details on Hegedus' flight to Cuba and highlighted other alleged criminal activity by defendants in the case.

When approached in 2012 by the FBI in New York, Femenia said he closed the door on the agent. "I was in shock," he said.

He then called Hegedus, who fled to Cuba. "I was shocked when he ran," Femenia said. "I did what I could do to get him back."

Hegedus and Laurenti were fugitives when the federal indictment was unsealed in December 2012. Unlike the other two defendants Friday, the couple, appearing separately before Conrad, wore Mecklenburg County jail garb.

Meyers, the assistant U.S. Attorney, said Femenia missed an opportunity to help from the start but later cooperated with prosecutors. He is aiding the government's pursuit of another possible defendant in New York, he said.

Court records indicate that Femenia and Hegedus also committed mortgage fraud when they bought a luxury home in Waxhaw in 2008. Femenia claimed he was making $225,000 per year but was only a business school student at the time, according to court documents.

Assistant U.S. Attorney Kelli Ferry said in court that Hegedus grew marijuana on the property, leading to one of the highest electrical bills in Union County.

Five other defendants involved in the insider trading conspiracy have already been sentenced. Their prison terms have ranged from two years in prison to one year of probation, according to the U.S. Attorney's office in Charlotte. A tenth has pleased guilty and awaits sentencing.

The U.S. Securities and Exchange Commission also filed civil suits against the defendants in 2012. That case is ongoing.