The Securities and Exchange Commission alleges that Waldyr Da Silva Prado Neto, a citizen of Brazil who was working for Wells Fargo in Miami, learned about an impending acquisition and profited illegally from insider information. The SEC was apparently undeterred by the language barrier in filing its action.
The SEC claims that Prado, while a registered representative at Wells Fargo, traded on material nonpublic information. Prado is contesting the charges, so the SEC allegations may not be accurate, but I’ll assume they are for trying to learn some lessons from the prosecution.
Prado had a large customer who put $50 million into a 3G Capital partners fund. That fund ultimately took Burger King private. The Customer and Prado met several times. A short time later Prado began trading in Burger King securities. Then another customer of Prado began trading in Burger King securities.
The SEC produced excepts of email in its complaint against Prado, translating from the original Portugese.
“Prado’s emails and other communications may have been sent from Brazil and written in Portuguese, but our commitment to prosecute illegal insider trading on U.S. markets knows no geographic or language barrier.”
– Sanjay Wadhwa, Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit and Associate Director of the New York Regional Office.
Prado’s e-mail translated from Portuguese: “I’m in Brazil with information that cannot be sent by email. You can’t miss it….” Prado later placed a phone call to this friend on a phone call that night that he heard 3G Capital was going to take Burger King private. That friend was a hedge fund manager. Instead of trading on the information, he warned Prado that he should not trade on this information and should not encourage any of his customers to trade either. That did not deter Prado.
The difference in this case, compared to the Well Advantage case of foreign traders or the Sanchez case for Potash, is that Prado was a US based registered representative. So his communications are likely well preserved for the SEC to find the smoking gun linking him. You can see the emails in the complaint. The SEC got to use Prado’s words against him.
The SEC could not find the emails in the Sanchez case and I would guess they will also fail to find the smoking guns of insider trading in the Wells Advantage case.
Missing from this fact pattern is what happens to the Customer who breached his confidentiality agreement and told Prado about the upcoming transaction.
- SEC Freezes Assets of Insider Trader in Burger King Stock – SEC Press Release
- SEC Complaint against Prado (.pdf)