Fidelity Article

I just ran across this article. Who else thinks CFAI will include an ethics question on a future test related to brokers providing illegal drugs to traders and facilitating gambling? How about traders having romantic relationships with brokers? Lots of material to work with here. Fidelity Faulted in Gifts Probe Wednesday March 5, 5:45 pm ET By Mark Jewell, AP Business Writer SEC Penalizes Fidelity, Names 13 in Probe Over Improper Gifts From Brokers BOSTON (AP) – The Securities and Exchange Commission on Wednesday fined Fidelity Investments $8 million and brought civil charges against former star money manager Peter Lynch and 12 others for receiving improper gifts from outside brokers vying to win Fidelity’s trading business. The SEC’s order settles a long-running case against the nation’s largest mutual fund manager, which was found to have accepted more than $1.6 million in perks from 2002 to 2004, including World Series baseball tickets, Rolling Stones concert tickets, and private jet trips to exotic destinations. The SEC also said some Fidelity traders accepted illegal drugs from brokers, and one trader’s illegal gambling was facilitated by a broker. The three-year investigation also found family and romantic relationships involving Fidelity employees and outside brokers influenced the company’s selection of brokers to handle trading business. Three of the individuals charged in the administrative proceeding, including Lynch, agreed to settle the SEC’s charges without admitting or denying the allegations, the agency said. Ten others are contesting the charges, which will be argued in administrative hearings in a proceeding similar to a court case. The ten could face financial penalties and orders to give up ill-gotten gains, but not prison time. “The broker selection process on Fidelity’s equity trading desk was compromised when gifts and lavish entertainment swayed the flow of brokerage business,” said Walter Ricciardi, the SEC’s deputy director of enforcement. “This misconduct created a serious risk of investor harm and violated Fidelity’s duty of allegiance and loyalty to investors.” The order requires Boston-based Fidelity to pay an $8 million penalty, in addition to a total $3.75 million that four of Fidelity’s brokerage units were fined a year ago by the National Association of Securities Dealers, an industry self-policing organization now called the Financial Industry Regulatory Authority. And Fidelity also said in December 2006 it would pay at least $42 million in penalties to its funds as punishment over gifts its traders received from brokers. Fidelity said in a prepared statement Wednesday that the settlement “concludes the regulatory investigations into these events, which took place more than three years ago.” By agreeing with the settlement, the company said it neither admits nor denies the SEC findings. “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 said. The company said it has taken steps to correct the problems that led to the gift abuses, and none of the individuals cited by the SEC remain on its trading desk. Most are no longer with Fidelity. The case against Lynch accuses him of obtaining free tickets to concerts, theater and sporting events paid for by brokers through his requests to two traders on Fidelity’s equity trading desk. The order requires Lynch to pay $15,948 in allegedly ill-gotten gains, as well as interest totaling $4,183. A representative for Lynch issued a statement: “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.” As manager of Fidelity’s Magellan Fund, Lynch became a household name in the business world for the fund’s consistently market-beating returns in the 1980s. Magellan averaged a 29 percent annual return from 1977 to 1990 under Lynch, helping drive Fidelity’s strong growth in the 1980s and into the 1990s. Since leaving as Magellan portfolio manager in 1990, Lynch, now 64, has served as vice chairman and a director of Fidelity’s parent company. He was a trustee of Fidelity Funds from 1990 until February 2003, and has since served as a member of the Fidelity Funds advisory board.

This is just slander against Peter Lynch

Just a slap on the wrist.