Friday, December 17, 2004

It's Not the Season for Receiving Gifts

Fidelity Investments announced that it has disciplined 16 stock traders for accepting gifts and entertainment from brokers seeking business from the large mutual fund company.  Two traders, Thomas Bruderman and Robert Lewis Burns, have left the company, apparently because of their ties with Kevin Quinn, a broker with Jefferies & Co. who has been terminated by that firm (see Dec. 16 post) for improperly accounting for entertainment expenses.  Bruderman and Burns appear to have been recipients of Quinn's largesse, according to a story in the New York Times  (Dec. 17).  In a press release, Fidelity stated:

Fidelity Investments has been cooperating with the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) in an investigation of policies and procedures regarding gifts, gratuities and business entertainment. During the course of our own investigation, we uncovered instances where there were violations of the company's policies and procedures. This has caused us deep concern because we do not tolerate wrongful behavior. We take this matter very seriously. That said, our internal review has not revealed any instance where inappropriate and unauthorized behavior on the part of any individual has resulted in any financial loss to the Fidelity mutual funds or to any shareholder by adversely affecting the quality of executions received by the Fidelity funds on their trades.

Fidelity had largely dodged the after-hours trading controversy that rocked the mutual fund industry in 2003, and this issue may be just an isolated incident.  However, the number of traders who violated the firm's own policies indicates that this may well be an issue that will touch other mutual fund companies, hedge funds, and pension plans. The issue of gifts is certainly not limited to the investment business, and serious questions have been raised regarding entertainment and travel provided to doctors by the pharmaceutical companies.  No telling yet whether this will this presages a wide crackdown on the industry. (ph)

Civil Enforcement, Securities | Permalink

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