Eight current and former Fidelity Investments employees will pay more than $1 million to settle federal charges they improperly received gifts from brokers seeking the Boston mutual fund company's vast trading business, the Securities and Exchange Commission said yesterday.
They are among a group of 13 current and former employees charged with wrongdoing by the agency earlier this year for accepting $1.6 million worth of gifts and entertainment - free plane rides, golf outings, concert tickets - in violation of federal rules limiting such gifts. All but two of the 13 have now settled.
Fidelity itself agreed in March to an $8 million settlement with regulators. The family-controlled firm did not admit or deny wrongdoing, but was put in the rare position of explaining a breakdown in oversight and supervision to its fund shareholders. Prompted by fund trustees, Fidelity separately agreed to repay fund shareholders $42 million for potential trading-related losses.
None of the eight yesterday admitted or denied the SEC's findings, the agency said in a statement.
The SEC said the traders failed to get the best prices for stock trades on behalf of mutual fund customers because their choice of brokers was influenced by the gifts - a claim the company and the traders have previously denied.
The most prominent figure to settle yesterday was Scott DeSano, once the head of Fidelity's trading desk, whom the SEC found "was a cause of Fidelity's failure" to seek the best trading terms for clients, and who also failed to supervise the traders.
"By accepting improper gifts from brokers, these individuals squandered the most important commodity in the financial services industry - investor trust," said the SEC's deputy director of enforcement, George Curtis.
DeSano will pay more than $267,000 in penalties and fines, while the others will pay lesser amounts. His lawyer couldn't be reached for comment yesterday evening.
One of the cases still outstanding is that of former trader Thomas Bruderman, whose lavish Florida bachelor party in 2003 came to symbolize the excesses of the case. His lawyer, Thomas Kiley, had previously said Bruderman reached a tentative settlement with the SEC. Yesterday, Kiley said that under that deal Bruderman would neither admit nor deny wrongdoing, but would not disclose more details.
The other unsettled case involves Robert Burns, another former Fidelity trader. The others who settled yesterday include Timothy Burnieika, Edward Driscoll, Jeffrey Harris, Christopher Horan, Steven Pascucci, and Kirk Smith. Of the group, Horan is the only one still working at Fidelity. Their lawyers either declined to comment or didn't return calls yesterday.
Another former trader who settled yesterday, David Donovan, faces charges on another front: The SEC has accused him of leaking information about planned Fidelity trades to his mother and a friend who is also a broker, with both profiting from the information. Donovan's lawyer, Raipher Pellegrino, said "Mr. Donovan continues to dispute those allegations."
Fidelity spokeswoman Anne Crowley noted the company disciplined the individuals previously including fines and terminations and put in place tougher rules against gifts.
Ross Kerber can be reached at email@example.com.