Fidelity Investments is gearing up for a fight with federal regulators now questioning a business relationship between a pair of siblings who handle a fraction of the fund giant's trading business. Fidelity trader David K. Donovan and his younger brother, Peter Donovan, an employee of Bank of American Securities, are under investigation for forging an improper business relationship, attorneys close to the case told The Boston Globe last week.

Regulators are now attempting to determine whether the brothers bilked Fidelity's shareholders by conspiring to negotiate overpriced transactions in technology stocks. David Donovan is a leading technology trader at Fidelity. Regulators are also looking into whether another six traders at Fidelity may have sent orders to relatives at brokerage firms.

The probe is another warning shot for mutual fund companies and their counterparts that are on notice for pending crackdowns on incestuous deals that potentially compromise investors' interests. The Securities and Exchange Commission launched probes earlier this year into improper gifts exchanged between Fidelity and a number of firms that receive part of its brokerage business.

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