The NASD is fining four Fidelity Investments broker/dealer subsidiaries $3.75 million for supervisory failures, including allowing brokers to accept lavish gifts. As many as 1,000 of Fidelity registered reps didn’t have supervisors, the NASD said. In addition, Fidelity maintained broker registrations for 1,100 employees who didn’t need the credentials, which would have enabled them to join another brokerage without taking tests required of those who are unregistered for two or more years. The regulator said that these registrations occurred because Fidelity permitted new employees to “park” NASD licenses they held prior to joining Fidelity even though they did not need them for jobs that neither required nor permitted NASD licenses.
Furthermore, the NASD said, Fidelity failed to maintain e-mails of 1,900 registered reps.
The NASD found that between 2002 and 2004, at least nine Fidelity traders whose licenses were parked received hundreds of thousands of dollars worth of improper gifts and entertainment from brokerage firms seeking their business.
Besides levying the fine on Fidelity, the NASD has ordered the subsidiaries to conduct comprehensive audits of their systems, policies and procedures relating to registration and electronic recordkeeping.
“It is inexcusable that four affiliated brokerage firms would fail to comply with essential registration, supervision and e-mail requirements,” said NASD Executive Vice President and Head of Enforcement James S. Shorris. “There failures were especially significant here because they permitted an environment where improperly registered employees of a Fidelity investment advisor were able to engage in conduct that created actual or apparent conflicts of interest involving the employees, Fidelity and its fund customers.”