BOSTON – Fidelity Investments has agreed to pay $8 million to settle a U.S. Securities and Exchange Commission probe of 13 employees who allegedly accepted more than $1.6 million in gifts from brokers. The SEC has said those workers failed to seek the best terms when trading for funds, instead routing transactions to brokers who provided gifts including concert, theater and Super Bowl tickets, trips to Mexico and a $160,000 junket to Miami.
In a statement last night, the company neither admitted nor denied the charges, but noted that it previously had made one-time payments of more than $42 million to the Fidelity funds, at the order of the company’s trustees, “as a penalty for this same misconduct.”
“The settlement, which relates to findings regarding Fidelity and 13 employees, concludes the regulatory investigations into these events, which took place more than three years ago,” the Fidelity Investments statement said.
“In the three years since this misconduct came to light, Fidelity has taken a number of remedial actions to back up its commitment that these types of activities shall not recur, including disciplining the individuals involved.
“None of the individuals cited by the SEC remain on the trading desk and most of them are no longer with the firm. Also, as the SEC noted in today’s settlement, we enhanced appropriate policies, added new management oversight on the trading desk and conducted extensive training with employees.
“Additionally, we agreed in December 2006 with the Independent Trustees of the Board of the Fidelity Funds to make a one-time payment of $42 million to the funds and an additional payment to other accounts Fidelity advises as a penalty for this same misconduct.
“In agreeing to today’s settlement with the SEC, Fidelity neither admits nor denies the findings in the SEC’s Order. And, 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 Investments Vice Chairman Peter Lynch, former manager of the Fidelity Magellan fund, was also a party to yesterday’s settlement. Bloomberg News noted. He agreed to forfeit more than $20,000, plus interest, to make up for the “numerous” free tickets the SEC said he received from Fidelity traders.
In a statement this morning, Lynch admitted he had asked the trading desk for “occasional help locating tickets” to events including “The Nutcracker” and “The Lion King” as well as the Ryder Cup golf match in Brookline, Mass.
“Today I settled an administrative proceeding with the SEC,” 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. I want the public to know that I have never worked on the trading desk, and, since retiring from investment management at Fidelity over 17 years ago, I have not placed any trades on behalf of Fidelity with any brokerage firm … [and] have spent most of my time on community service.”
The SEC’s claims against former head trader Scott DeSano and nine other past or current Fidelity employees are still pending.
“The behavior that led to these settlements is not at all indicative of the ethical standards of our company and the vast majority of our employees,” Fidelity Investments said, adding: “Please be assured that Fidelity remains committed to maintaining [the] high standards of integrity and ethical behavior upon which the company was founded and built.”
Fidelity Investments comprises a family of privately held companies, based in Boston, that provides mutual funds, discount brokerage services, retirement and estate planning, life insurance, wealth management and other services to more than 23 million clients worldwide. To learn more, visit www.fidelity.com.
