Fidelity acknowledges probes by SEC, NASD over lavish gifts

Employees allegedly got wine, trips from brokers

December 16, 2004|By BLOOMBERG NEWS

Fidelity Investments, the world's largest mutual fund company, said that federal regulators are investigating whether its employees took improper gifts in exchange for directing business to brokers at outside firms.

Fidelity uses outside brokers to execute securities trades. The Boston company, which oversees about $1 trillion for clients, is cooperating with investigations by the Securities and Exchange Commission and the NASD, Fidelity spokeswoman Anne Crowley said yesterday. Fidelity also is conducting its own review, she said.

Regulators are examining evidence that brokers may have lavished Fidelity employees with expensive wine and trips to the Super Bowl, golf outings and the Wimbledon tennis championship.

Fidelity's ethics rules preclude employees from taking gifts from vendors worth more than $100, according to a document filed with the SEC.

"We have a variety of policies and procedures in place that address appropriate business conduct by our employees," Crowley said in an e-mailed statement. "If we find anyone has violated those policies and procedures, we take action to correct them and to discipline employees, up to and including dismissal."

The SEC and NASD, formerly known as the National Association of Securities Dealers, began seeking information from Fidelity and about two dozen firms, including brokerages and investment management companies, after a Boston sales trader with Jefferies Group Inc. was fired for improper travel and entertainment costs.

Fidelity was the sole client of Kevin Quinn, 38, who was dismissed by Jefferies on Oct. 11. Jefferies reviewed Quinn's expense reports and found he violated its policy "concerning personal utilization of company property and funds," according to records compiled by the NASD.

Jefferies, based in New York, ranked 13th among brokerages that Fidelity uses to trade securities, according to Fidelity. The trades generated at least $13 million in fees for Jefferies in the past 12 months, according to public filings analyzed by Georgeson Shareholder Analytics StreetSight. Jefferies had net income of $84 million on revenue of $927 million last year.

Fidelity's also trades through Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. Spokespeople for those companies declined to comment.

The Boston Globe has reported that the SEC also is investigating whether Fidelity traders may have improperly steered business to brokerage firms where their siblings work.

Peter J. Donovan, the younger brother of Fidelity trader David K. Donovan, works as a sales trader at Banc of America Securities LLC in Boston.

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