Tuesday, July 26, 2005

Fidelity Receives Notice of Possible SEC Suit Over Gifts

The Wall Street Journal is reporting (here) that Fidelity Investments has received a Wells Notice from the SEC, which is a notification that the Commission staff has decided to recommend a securities enforcement action, regarding the receipt of gifts by employees who worked in the firm's stock trading department from securities brokerage firms.  The investigation has been going on since late last year, and was the subject of an embarrassing front page article in the Journal (see earlier post here) about a bachelor party for a Fidelity trader that included a private jet, hotel rooms, and yacht, all paid for by brokerage firms.  Other gifts being investigating include tickets to the Olympic women's figure skating final and rounds of golf, including an invitation to the highly-coveted Pebble Beach Pro-Am, that were paid for by brokerage firms seeking a slice of Fidelity's approximately $1 billion in trading commissions. Fidelity reassigned the former head of stock trading, Scott DeSano, to a new position, after the gift probe came to light. 

Fighting Fidelity could be a significant undertaking for the SEC because the firm has quite a deep pocket and a reputation among small investors that it wants to defend.  The Johnson family, which controls FMR Inc., which is the corporate parent of Fidelity, naturally have quite a proprietary interest in the firm and have a reputation for being quite hard-nosed.  That said, the mutual fund company likely would prefer to avoid a drawn out fight in which some rather gory details would come to light (perhaps even worse than the dwarf-tossing at the bachelor party), so it may accept the one-day publicity hit from a settled SEC action.  The Wells Notice is all part of the negotiation dance, and Fidelity's response, at least as quoted in the Journal article, is a familiar step, that it intends to "vigorously" defend itself.  We'll see. (ph)


Civil Enforcement, Securities | Permalink

TrackBack URL for this entry:


Listed below are links to weblogs that reference Fidelity Receives Notice of Possible SEC Suit Over Gifts: