Fidelity Faulted in Gifts Probe

Discussion in 'Wall St. News' started by dtrader98, Mar 5, 2008.

  1. How long did it take the SEC to crack this case... 20 yrs?

    Talk about efficient.

    SEC Penalizes Fidelity, Names 13 in Probe Over Improper Gifts From Brokers

    BOSTON (AP) -- The Securities and Exchange Commission has accused Fidelity Investments and 13 of its current or former employees of improperly receiving gifts totaling more than $1.6 million.

    The SEC announced civil charges against Boston-based Fidelity on Wednesday in an order that requires the company to pay an $8 million penalty in the influence-peddling case.

    Among the 13 former and current Fidelity employees named is Peter Lynch, formerly a star manager at Fidelity's Magellan Fund.

    The order found Fidelity accepted lavish gifts such as travel and entertainment from outside brokers who courted Fidelity's massive trading business.

    A spokeswoman for Boston-based Fidelity says the issue has now been settled with regulators, with no finding that Fidelity shareholders were harmed by the gifts its employees received. Fidelity neither admits nor denies the SEC's findings.

    March 5, 2008, 10:08PM
    Lynch Faulted in Fidelity Gifts Probe

    By MARK JEWELL AP Business Writer
    © 2008 The Associated Press

    BOSTON — Federal regulators on Wednesday fined Fidelity Investments $8 million and brought civil charges against former star money manager Peter Lynch and 12 others for receiving improper gifts from outside brokers vying to win Fidelity's lucrative trading business.

    The Securities and Exchange Commission's order settles a long-running case against the nation's largest mutual fund manager, which was found to have accepted more than $1.6 million in perks from 2002 to 2004. The gifts included tickets to the Super Bowl and Rolling Stones concerts, private jet trips to exotic destinations, and fine wine and cigars, the SEC said.

    The agency said some Fidelity traders accepted illegal drugs and trips to strip clubs paid for by brokers, and one trader's illegal gambling was facilitated by a broker.

    In another case, a Fidelity equity trader organized his own three-day bachelor party in Miami, paid for by brokers at a cost of $160,000, the SEC said.

    "Brokers hired two women to entertain the attendees at the party, and provided a bag filled with illegal drugs (ecstasy pills)" to the trader, the SEC said.

    The investigation also found family and romantic relationships involving Fidelity employees and outside brokers influenced Fidelity's selection of brokers to handle trading business and receive millions of dollars in commissions.

    Three of those charged, including Lynch, agreed to settle without admitting or denying the allegations. Ten others are contesting the charges, which will be argued in administrative hearings similar to a court cases. The ten could face financial penalties and orders to give up ill-gotten gains, but not prison time.

    "The broker selection process on Fidelity's equity trading desk was compromised when gifts and lavish entertainment swayed the flow of brokerage business," said Walter Ricciardi, the SEC's deputy director of enforcement. "This misconduct created a serious risk of investor harm and violated Fidelity's duty of allegiance and loyalty to investors."

    The $8 million fine that Boston-based Fidelity was ordered to pay is in addition to $3.75 million that four Fidelity brokerage units were fined a year ago by the an industry self-policing organization now called the Financial Industry Regulatory Authority. And, after Fidelity ordered an independent review, the mutual fund manager said in December 2006 it would pay at least $42 million in penalties to its funds as punishment over gifts its traders received from brokers.

    Fidelity said in a prepared statement that by agreeing with the settlement, the company neither admits nor denies the SEC findings.

    "Although the order makes no finding of financial harm to our shareholders or our funds, we do recognize the seriousness of the misconduct found by the SEC," Fidelity said.

    At issue is whether investors may have paid higher costs because Fidelity directed trading business to brokerages that enticed Fidelity traders with gifts but not necessarily the best service. Mutual funds are required to disclose payments that might affect their decisions, and industry rules prohibit such gifts if they are worth more than $100.

    After the abuses surfaced more than three years ago, Fidelity disciplined more than a dozen employees. The case also led to an industrywide probe of gift-giving practices. In December 2006, Jefferies & Co. Inc. agreed to pay $9.7 million to settle regulators' civil charges that it illegally lavished nearly $2 million in gifts on Fidelity mutual fund traders.

    The SEC says Fidelity oversight was lax.

    "As one trader commented to another, 'Word is out that order flow is for sale,'" the SEC order said.

    Fidelity said it has worked to correct the problems that led to the abuses, and none of the individuals cited by the SEC remain on its trading desk. Most are no longer with Fidelity.

    The case against Lynch accuses him of obtaining free tickets to concerts, theater and sporting events paid for by brokers through his requests to two traders on Fidelity's trading desk. The order requires Lynch to pay $15,948 in allegedly ill-gotten gains, and interest totaling $4,183.

    A statement from Lynch said, "In asking the Fidelity equity trading desk for occasional help locating tickets, I never intended to do anything inappropriate, and I regret having made those requests."

    As manager of Fidelity's Magellan Fund, Lynch posted consistently market-beating returns in the 1980s. Magellan averaged a 29 percent annual return from 1977 to 1990 under Lynch.

    Since leaving as Magellan portfolio manager in 1990, Lynch, now 64, has served as vice chairman and a director of Fidelity's parent company. He was a trustee of Fidelity Funds from 1990 until February 2003.

    Along with Lynch, another former executive who agreed to settle the SEC's charges was Bart A. Grenier. The 49-year-old is a former Fidelity senior vice president who was responsible for Fidelity's equity trading desk and other business groups. The SEC found he accepted $38,500 worth of tickets to 21 concerts and sporting events. He was ordered to pay a total $51,316.

    Among the 10 contesting the SEC charges, one is a former executive, and nine are former traders.
  3. This kind of case happens day in day out on Wall St. The SEC has only limited manpower to handle them. :D
  4. I loved the one where the SEC filed civil charges against the two Enron in-house lawyers like 5 years after the scandal broke.

    Ironically, one of the lawyers, Jordan Mintz, was one of the few in Enron who tried to do the right thing once he realized all the shenanigans he was surrounded by. He even testified before Congress to help shed light on what happened.