Fidelity charged by Massachusetts with dishonest and unethical behavior

Company accused of allowing unregistered advisers to make trades through its broker-dealer platform

Oct 26, 2015 @ 10:16 am

By Bruce Kelly

Fidelity Brokerage Services was charged in an administrative complaint Monday with dishonest and unethical behavior by the commonwealth of Massachusetts for allowing unregistered investment advisers to make trades through the Fidelity broker-dealer platform, thereby generating fees for both the firm and the unregistered advisers.

At least 13 unregistered Massachusetts investment advisers used Fidelity's platform, according to a statement from secretary of the commonwealth William Galvin.

For those advisers, “Fidelity served as a haven from regulatory oversight as it ignored blatant unregistered investment advisory activity,” according to a statement from Mr. Galvin's office.

“We do not believe that Fidelity has violated any laws or regulations in connection with this matter,” said Adam Banker, a Fidelity spokesman. “We look forward to reviewing the details of this matter and addressing them appropriately.”

(Related read: How Massachusetts' Galvin has shaken up the B-D industry)

“Fidelity, of all companies, knows full well the range of investor protection provisions resulting from regulatory oversight,” Mr. Galvin said in the statement. “For them to knowingly allow unregistered activity on their broker-dealer platform is a profound failure of their regulatory obligations.”

(More: Read about the biggest regulatory blunders of 2014)

In one instance, more than 20 Fidelity customers paid one unregistered investment adviser who was trading on their behalf $732,000 in advisory fees over a 10-year period, according to the complaint. The complaint alleges that Fidelity had knowledge that the individual was acting as an adviser during that entire period and encouraged his trading activity by providing the purported adviser, who made thousands of trades in the accounts of his clients, with gifts such as frequent flyer miles and tickets to a professional sporting event.

Fidelity had policies in place since 2011 that specified red flag risk warnings for certain levels of third-party trading, but those were ignored until recently, according to the statement from Mr. Galvin.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

What's behind the TCA, ETrade deal?

Deputy editor Bob Hordt talks with senior columnist Jeff Benjamin about what each party in the recent acquisition stands to gain by joining forces.

Latest news & opinion

HighTower on prowl for new CEO, Weissbluth to become chairman

Move is latest in Chicago-based RIA consolidator's effort to expand senior leadership team.

What's in a name? For TCA by ETrade, everything

Trust Company of America is gone, and there's big buzz over the name change. But turning the custodian into an industry powerhouse will take a lot longer — if it happens at all.

When it comes to regulating AI in financial services, murky waters are ahead

Laws are unclear on how the technology fits in with compliance.

As Ameriprise case shows, firms on hook when brokers go bad ​

The SEC will collect $4.5 million from the brokerage firm for failing to supervise brokers who were ripping off clients.

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print