Today, SEC Administrative Law Judge Jason S. Patil dismissed an insider trading case against former Wells Fargo trader Joseph C. Ruggieri. Judge Patil found that the SEC failed to prove that the person who tipped Ruggieri did so for a personal benefit, as required by the recent, quite disruptive opinion by the Second Circuit in U.S. v. Newman. 


On September 29, 2014, the SEC announced an action against Ruggieri and his alleged tipper, a former Wells Fargo research analyst named Gregory T. Bolan, Jr. The SEC alleged that Bolan tipped Ruggieri in advance of several market-moving ratings upgrades or downgrades that Bolan made in certain securities. Ruggieri allegedly then traded based on this information in advance of six separate research reports, generating more than $117,000 in profits.


In a detailed, 50-page opinion, Judge Patil applied the Newman court's strict definition of "personal benefit." Judge Patil wrote that he did not agree with the SEC's contention that Newman conflicts with prior Supreme Court cases such as Dirks v. SEC and erroneously heightened the burden of proof. Rather, he concluded, Newman should be viewed as "clarifying the standard where proof of a personal benefit is based on a personal relationship or friendship."


Judge Patil found that none of the supposed benefits to Bolan that the SEC alleged were sufficient in this case, including career mentorship, positive feedback to others in the firm, friendship, a working relationship, and a "gift to a friend." In conclusion, Judge Patil wrote, "it is possible that Bolan tipped Ruggieri for a personal benefit, but the Division has not met its burden to establish this required element."


In March 2015, Judge Patil also ruled against the SEC In the Matter of Thomas R. Delaney II and Charles W. Yancey. Prior to that case, the SEC had posted a 100% success rate in FY 2014, including 14 consecutive victories in cases that went to a litigated hearing before an SEC Administrative Law Judge.