West Palm Beach (HedgeCo.Net) – Fidelity will pay $8 million to settle the embarrassing claims brought on by the SEC.
At he head of the allegations are Vice Chairman Peter Lynch and former head trader Scott DeSano. The two men, along with 11 other former and current employees have been accused of taking $1.6 million worth of lavish gifts from brokers vying for position.
The SEC claimed that Fidelity put their fund’s best interests aside, in exchange for Super Bowl tickets and private jet trips to Mexico that other brokers provided.
“Investment advisers must insist that brokerage firms compete for mutual fund business based on their ability to deliver the best execution, not based on personal considerations like event tickets,” said David Bergers, regional director of the SEC’s Boston regional office, in a statement.
It was the 3-day bachelor party of former Fidelity trader Thomas Bruderman, 39, that also got a lot of attention. Bruderman, along with his buddies from the firm, flew down to Miami where they apparently partook in all sorts of debaucheries including ecstasy use with female escorts. This particular trip cost brokers about $160,000. The SEC also charged Bruderman will receiving drugs including ecstasy and marijuana from brokers on “a number of occasions.”
“We do recognize the seriousness of the misconduct,” even though the SEC didn’t assert that Fidelity harmed shareholders or its funds," Fidelity said in a statement. “The behavior that led to these settlements is not at all indicative of the ethical standards of our company.”
Peter Lynch, former manager of the Magellan Fund, used his position to accept tickets to concerts, plays, and the Ryder Cup. While he did admit to asking for “occasional help in locating tickets,” he immediately expressed his apologies.
“I never intended to do anything inappropriate, and I regret having made those requests,” Lynch said.
The SEC is also requiring Fidelity to hire an independent compliance consultant to review their policies and procedures on trading operations, conflicts and gifts, so that the brokers will not be influenced by “lavish gifts as well as family and romantic relationships with brokers.”
This isn’t the first time Fidelity has been in hot water over kickbacks. The company had to pay $42 million in December 2006 for similar misconduct. In a related case, Jeffries Group Inc. was fined $10 million for supplying employees of Fidelity with gifts, including chartered flights, a party hosted by Playboy magazine, and tickets to Wimbledon.
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: [email protected]]
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