Legal News

Fidelity: Trading Order Flow for Tickets, Cigars, Dwarf Tossing

By Dan Slater

Under SEC rules, the trading desks of mutual funds are supposed to execute orders with whichever brokerage firms offer the best price and service — not the best Celtics tickets.

But after a four-year investigation into gifts lavished on mutual funds by Wall Street, the SEC has discovered that taking gifts — such as event tickets, cigar-filled humidors, escorts and drugs — had been the MO at Fidelity for years. Yesterday, the firm settled with the SEC for $8 million. Here are stories from the WSJ and NYT.

Among the 13 Fidelity employees accused of accepting gifts, the most high-profile was Peter Lynch, a former Fidelity portfolio manager, who allegedly accepted 61 tickets to 12 events, including 14 three-day passes to the 1999 Ryder Cup golf tournament and a U2 rock concert. The total value: $15,948. Lynch, 64, settled the case individually without admitting or denying wrongdoing by repaying the money with interest.

The SEC also has begun administrative proceedings against traders at Fidelity who allegedly received more than $1.5 million in gifts, travel and entertainment: a humidor loaded with cigars, Super Bowl tickets and foreign travel on private jets. The list includes 900 tickets to more than 200 sporting events, Broadway shows, Rolling Stones and Bruce Springsteen concerts.

In an order filed yesterday, the SEC provided details of a bachelor party in Miami for Fidelity traders that was reported in a 2005 WSJ front-pager. Allegedly, Wall Street firms provided private jets, the illegal drug Ecstasy, and paid for female escorts for attendees, which included Fidelity traders. The party also featured the hiring of a male dwarf for a “dwarf tossing” contest, a practice that has been banned in many places.

A spokesman for Mr. Lynch said the investor didn’t know the origin of the tickets. “He doesn’t deserve to be lumped in with this other crowd. It was only tickets; it wasn’t expensive cases of Bordeaux or trips on jets like these other cases.” The Ryder Cup, the spokesman added, “has some real historical significance to Mr. Lynch because he used to caddy” at the Brookline, Mass., golf course that hosted the event.

Full post as published by Law Blog - WSJ.com on March 06, 2008 (boomark / email).