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WASHINGTON – Wells Fargo's investment arm stood by while one of its brokers made stock-market trades using confidential customer information, activity that the firm hid from authorities for six months, according to the Securities and Exchange Commission.

On Monday, the regulator leveled a $5 million fine against Wells Fargo Advisors for failing to maintain adequate controls to prevent insider trading and produce internal reviews of the broker's trades. The case marks the first time the SEC has charged a brokerage firm for failing to protect private customer information.

Wells Fargo admitted wrongdoing to the SEC.

The case is rooted in the actions of former Wells Fargo broker Waldyr De Silva Prado Neto. Prado learned from a client in the spring of 2010 that Burger King was being acquired by private-equity firm 3G Capital Partners. The broker tipped off investors in his native Brazil and traded Burger King stock for a profit of $175,000.

The SEC obtained e-mails Prado sent to friends alerting them to the deal. In one instance, the broker passed information to banker Igor Cornelsen, who e-mailed Prado to ask "is the sandwich deal going to happen," according to the complaint against the broker. Cornelsen ultimately made $1.68 million off the illegal trades.

In the course of its investigation, the SEC discovered that multiple groups within Wells Fargo were told that Prado was misusing customer information but failed to act.

Washington Post