Galvin files complaint against Fidelity with ‘dishonest and unethical behavior’

BOSTON – Secretary of State William F. Galvin charged Fidelity Brokerage Service LLC of Boston with “dishonest and unethical behavior” for allowing unregistered investment advisers to conduct business.
Galvin, in a press release, said that for at least 13 unregistered Massachusetts investment advisers, Fidelity served as a “haven from regulatory oversight as it ignored blatant unregistered investment advisory activity.”
“Fidelity, of all companies, knows full well the range of investor protection provisions resulting from regulatory oversight. For them to knowingly allow unregistered activity on their broker-dealer platform is a profound failure of their regulatory obligations,” Galvin said in a statement.

Fidelity spokesman Adam Banker in a statement said the company does not believe it broke the law.
“We can assure you that we take very seriously the trust investors place with us and our obligation to manage our business in accordance with all relevant laws and financial industry regulation,” he said.

The complaint calls for Fidelity to stop the practice and to hire an independent consultant to make recommended changes to Fidelity’s policies and procedures. Galvin also wants Fidelity to pay an administrative fine and to be censured.

The complaint states that more than 20 Fidelity customers paid one unregistered investment adviser who was trading on their behalf $732,271.83 in advisory fees over a 10-year period.

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The complaint states that Fidelity knew that the individual was acting as an advisement adviser during that entire period and “encouraged” his trading activity by providing the individual with gifts such as frequent flyer miles and tickets to a professional sporting event.
“Only after a period of some 10 years was the adviser’s trading authorizations revoked for acting in an unregistered capacity,” the complaint stated.

The complaint said that Fidelity had policies in place for four years that specified red flag risk warnings for certain levels of third-party trading, but that these were ignored until the 13 individuals were terminated for unregistered activity this year, coinciding with the Securities Division’s investigation.

The complaint concluded, “The complete failure to detect and prevent unregistered activity has left Massachusetts individual investors, including Fidelity’s own customers, at risk and is a clear case of dishonest and unethical behavior.”

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