Tuesday, June 28, 2005

SEC Investigation of Fidelity's Controlling Shareholders for Gifts

The Johnson family, which controls Fidelity Investments, the mutual fund giant, has become part of the SEC investigation into gifts given by brokers seeking to obtain the business of large investment firms.  An earlier post (here) discussed the investigation of Scott DeSano, a senior Fidelity executive in charge of stock trading, related to gifts he took that included a coveted slot to play in the Pebble Beach golf tournament that was paid for by Bank of America.  According to a Wall Street Journal article (here), the Commission staff has questioned Edward C. Johnson, III, Fidelity's CEO, about tickets he received in 2002 to the women's figure skating final at the Salt Lake City Olympics, and his daughter, Abigail Johnson, also a senior executive at Fidelity, about her requests to other employees to obtain tickets from brokers doing business with the firm.  The amounts involved are trivial compared to the wealth of the Johnson family members, but the issue is one of corporate culture rather than bribery.  The expectation of perks, and the desire to furnish them, detracts from offering the best service at the lowest cost to customers of Fidelity (full disclosure: I have retirement money at Fidelity, too.  I can't seem to miss with these firms!).  No perk is cost free, even if you don't have to open up your wallet.  To make matters a bit more interesting, in May, the U.S. Attorney's Office in Boston began conducting a criminal investigation of gifts to Fidelity executives (see N.Y. Times story here).  (ph)

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