Execs accepted gifts, lavish entertainment and 'romantic relationships' that swayed the flow of brokerage business
The Securities and Exchange Commission (SEC) has charged fund manager Fidelity Investments and 13 current or former employees including high-ranking executives, for improperly accepting more than $1.6m in gifts.
The SEC Order requires Fidelity to pay an $8 million penalty.
The gifts included travel and entertainment paid for by outside brokers courting the massive trading business Fidelity generates on behalf of the mutual funds it manages.
In a settled Order against Fidelity, the SEC charged that the firm failed to seek the most favorable terms for its clients' mutual funds securities transactions.
The Order found that Fidelity allowed the selection of brokers to execute those transactions to be influenced by lavish gifts as well as family and romantic relationships with brokers.
Walter Ricciardi, deputy director of the SEC's division of enforcement, said: "The broker selection process on Fidelity's equity trading desk was compromised when gifts and lavish entertainment swayed the flow of brokerage business. This misconduct created a serious risk of investor harm and violated Fidelity's duty of allegiance and loyalty to investors."
“The gifts included travel and entertainment paid for by outside brokers courting the massive trading business Fidelity generates on behalf of the mutual funds it manages.
David P. Bergers, regional director of the SEC's Boston regional office, said: "This case demonstrates again the SEC's commitment to preventing conflicts of interest from compromising the integrity of the markets. Investment advisers must insist that brokerage firms compete for mutual fund business based on their ability to deliver best execution, not based on personal considerations like event tickets."
The SEC said the penalty takes into account Fidelity's separate agreements with its mutual fund trustees and institutional and other clients to make additional payments. The SEC also ordered the firm to cease any further violations, and required Fidelity to hire an independent compliance consultant to conduct a comprehensive review of its current policies and procedures.
Fidelity consented to the Order without admitting or denying the findings.
According to the SEC Order, those charged received a host of travel, entertainment and other gifts paid for by outside brokers, including private jet trips to such places as Bermuda, Mexico, and Las Vegas and premium sports tickets to events including Wimbledon, the Super Bowl, and the Ryder Cup golf tournament.
The individuals charged include Scott E. DeSano, Fidelity's former senior vice president and head of global equity trading. Other executives charged were Bart A. Grenier, a senior vice president, and Peter Lynch, Fidelity's trustee, vice chairman and former portfolio manager of Fidelity's flagship Magellan Fund. Grenier and Lynch settled the SEC's charges without admitting or denying the allegations.