The Securities and Exchange Commission and the New York Stock Exchange last week fined Fidelity Brokerage Services $2 million for destroying or altering records in at least 21 of its 88 branch offices.
In a joint investigation, the SEC and NYSE found that between January 2001 and July 2002, at least 62 employees destroyed or tampered with books and records in advance of internal inspections after the employees found they were incomplete or not in accordance with company policies. Bowing to pressure from managers to have perfect records, they destroyed new account applications, authorization letters, variable annuity forms and other documents, the SEC and NYSE charged.
Fidelity neither admitted nor denied these findings. However, a Fidelity spokeswoman noted that the tampering "occurred primarily in the western region" and did not result in "any financial harm to customers or financial benefit to Fidelity, [as it] occurred after customer transactions were completed in accordance with customer instructions."
The suit against the firm indicates that Fidelity reported the improprieties to authorities in July 2002 after a registered rep called them into the firm's ethics hotline after discovering them during a compliance review. The firm then fired 13 branch employees, including three branch managers, and replaced four members of its western region management team in addition to the area's compliance officer. Since the incident, Fidelity Brokerage has also made changes to its inspection program to clarify employees' recordkeeping responsibilities.
The $2 million fine includes a $1 million civil penalty from the SEC for violating federal broker/dealer recordkeeping requirements and failing to supervise employees and a $1 million fine from the NYSE for violating its rules. In addition, the NYSE separately took disciplinary actions against seven former Fidelity Brokerage employees, including six registered representatives and a customer service representative. All were censured and barred from the industry between one and three months.
"Destroying and cleaning up' files in advance of internal inspections or NYSE examinations corrupts the integrity of the regulatory process and will not be tolerated," said Susan L. Merrill, chief of enforcement at the NYSE.