Former Fidelity Lawyer Sues Firm Over Policies
David van Duyn, a former lawyer in Fidelity Investments' risk oversight and enterprise compliance unit, has sued the company, charging it failed to comply with anti-money laundering laws, Reuters reports.
Specifically, van Duyn said that Fidelity executives ordered him not to monitor transactions and to falsify documents.
Fidelity has counter-sued, charging van Duyn with breaking a confidentiality agreement that precluded him from divulging Fidelity business. In addition, Fidelity said that the lawyer falsified an e-mail about regulation, for which he was fired in December 2006.
A Fidelity spokesman, Vincent Loporchio, said the company works vigorously to meet its regulatory obligation.
Former Trautman Broker Fined $250K for Timing
The U.S. District for the Southern District of New York has entered its final judgment against Scott A. Christian, a former broker for Trautman Wasserman, for his role in market timing and late trading. Without admitting or denying the Securities and Exchange Commission's charges, Christian consented to a $250,000 fine.
According to the SEC's complaint, Christian enabled a number of the brokerage's customers to late trade mutual funds by time stamping their orders before the market's 4 p.m. close but submitted the orders as late as 6:30 p.m.
Forty fund companies sent more than 300 letters both to Christian and Trautman Wasserman asking them to stop the excessive trading. To circumvent their scrutiny, Christian then opened up multiple accounts for his customers and used various registered representative identification numbers.
A related case against six other principals of the firm is still pending. They are Gregory O. Trautman, Samuel M. Wasserman, James A. Wilson, Jr., Mark Barbera, Jerome Snyder and Forde H. Prigot.
Wachovia Paying $2M For Improper Supervision
The NASD has fined Wachovia Securities $2 million for improperly supervising its fee-based brokerage business between 2001 through 2004.
Wachovia also has to identify and pay reimbursement to 1,300 customers who were wrongly allowed to maintain fee-based accounts or charged account fees on Class A mutual fund share holdings for which they had already paid a sales load. The firm has to hire an outside consultant to see that the process is followed.
"Firms must have systems and procedures that are tailored to reasonably supervise their business activities," said James Shorris, NASD's vice president and head of enforcement. "In the case of fee-based accounts, firms had an obligation to their customers to assess the appropriateness of such accounts both when the accounts were opened and periodically thereafter," he said.
During the timeframe, Wachovia failed to establish and maintain supervision, including written procedures designed to monitor its Pilot Plus program, a fee-based account offering that started in 1999.
An investigation shows that 594 customers, who did not trade in their Pilot Plus accounts for a minimum of two consecutive years, paid the firm around $1.9 million in fees. Also, 620 customers who held assets of $25,000 or less for at least a year, paid minimum annual fees of $1,000. That fee represented twice the stated top rate of 2% allowed under the program.
In addition, two brokers who were poached from another firm brought more than 340 customers with them, for whom they opened Pilot Plus accounts. When recommending the program, the brokers used a letter that stated the Pilot Plus was a "fee-based, investment advisory service." However, the program was a fee-based brokerage account. When the firm found out that the brokers wrongly identified the program, the regulator said, it did not respond in a timely manner to correct the false representation to customers.
Judge Dismisses Lawsuit Against Fidelity, Deer
A federal judge has dismissed a lawsuit that four workers at Deer & Co. brought against their employer and Fidelity Investments, trustee and recordkeeper of Deere's 401(k) plan, Reuters reports. The suit, which sought class-action status, accused the two companies of not revealing a revenue-sharing agreement and of charging unreasonable fees.
Judge John Shabaz of the U.S. District for the Western District of Wisconsin decided the two parties were not obligated to reveal the revenue-sharing agreement.
"In the context of the disclosure of information on investment options, the additional information suggested by plaintiffs, including revenue sharing, is neither required by the regulations nor materials to participant investors assessing the investment opportunity," Judge Shabaz ruled.
Advisers Still Grappling With Advice in 401(k)s
Many financial advisers are still grappling with how the Pension Protection Act permits them to give advice to 401(k) plans, Investment News reports. And a good majority doesn't want to move to fee-based accounts from commissions.
Some advisers mistakenly believe the law allows them to still accept trailing commissions and revenue-sharing agreements, and it does not, said Jason Roberts, an attorney with Edgerton & Weaver, who has created a website to clarify the Pension Protection Act, ppa-law.com.
Likewise, Fidelity Investments, T. Rowe Price and Vanguard are currently working on clarifying the law for advisers, while AIG Advisor Group is doing the same for its own registered representatives.
Besides not being comfortable with the idea of providing advice, many advisers are unclear about how they will be paid, said Louis S. Harvey, president of Dalbar. Advisers are trying to find a way around being precluded from receiving a commission, Harvey said. "The truth of the matter is very simple," he said. "You have to be getting level compensation."
Ex-A.G. Edwards Chief Questions Wachovia Deal
Benjamin Edwards III, retired chief executive of A.G. Edwards, questioned and commented on the $6.8 billion deal with Wachovia at a recent shareholder meeting, according to the St. Louis Post-Dispatch.
Edwards, who retired in 2001, called the merger "devastating news" and said his heart goes out to the Wachovia and Edwards employees who will lose their jobs when the firms merge.
"We wonder if being number two is worth thousands of careers," he said. Wachovia is moving its operations to St. Louis from Richmond, Va., and once the merger is complete, it will be the nation's second-largest brokerage firm, with 15,000 brokers.
Robert Bagby, A.G. Edwards' chairman and chief executive, said after the meeting that he wasn't surprised by Edwards' speech because he knew he was opposed to the deal.
The merger "is a huge opportunity for the city and for A.G. Edwards. It's a huge opportunity for our clients to move forward," Bagby said. It "puts us in a position to never be a target again."
In his speech, Edwards questioned whether the company's values will endure after the merger.
"We thought we had built something special, a company that puts clients first, employees second and shareholders third," he said, later adding, "I believed we had the people, the client base, the physical plant, the capital and the operating ethic to give us another exciting and enjoyable 120 years."
Edwards also said A.G. Edwards' employees "feel lied to and betrayed." He urged the company to preserve Edwards' branch network and to resist the urge to close any branches over the objections of a branch manager. If the company does that, he said, it risks losing the manager and the brokers at that branch.
BlackRock Acquiring Unit Of Quellos for up to $1.7B
BlackRock announced it is acquiring the funds-of-funds division of Quellos Group for up to $1.7 billion. The division runs funds-of-funds that invest in mutual funds, hedge funds, private equity, real estate and hybrid offerings.
Once merged with BlackRock's existing funds, the funds-of-funds division-to be named BlackRock Alternative Advisors and overseen by Quellos CIO Bryan White-will have $25.4 billion in assets under management, making it one of the largest such platforms in the world. Quellos CEO Jeffrey Greenstein will retire but serve as an adviser during the transition period.
At the closing of the deal, scheduled for early October, BlackRock will pay Quellos $562 million in cash, $188 million in common stock and up to $970 million in cash and stock over a 3-1/2-year period, contingent upon certain measures being met.
"We are extremely excited to welcome the Quellos team to BlackRock," said Laurence D. Fink, chairman and chief executive officer of BlackRock.
Tokyo Stock Exchange To Permit Foreign ETFs
In the interest of increasing the number of exchange-traded funds available in Japan and preparing itself to go public, the Tokyo Stock Exchange plans to change its rules to allow non-Japanese ETFs to be listed, according to The Nikkei Report.
Domestic ETFs in Japan, by law, can use only the Nikkei Stock Average and Topix as the indexes on which to base the funds. As a result, when it comes to ETFs, investors on the Tokyo Exchange have only 11 choices.
The rules on foreign ETFs are expected to be far less restrictive. For example, the TSE expects the Financial Services Agency to allow ETFs based on commodities indexes.
The TSE is aiming to make ETFs the core product of its investment offerings before going public, an event tentatively slated for 2009.
More Private Equity Outfits Keen to Buy Asset Firms
Nuveen Investments' agreement to be bought by a private equity group led by Madison Deerborn Partners may indicate more deals in the future between the two non-traditional partners, according to The Wall Street Journal.
"All the very large private equity funds are very interested in this sector," said Darlene DeRemer of Grail Partners. Recently, the Carlyle Group expressed interest in investing in the sector, as well as other chief private equity firms rumored to be looking for targets.
The deal is unique, as private equity firms usually acquire struggling companies, while Nuveen is a solid company undergoing a growth spurt particularly due to its closed-end mutual funds.
The $5.75 billion deal is subject to shareholder approval and is expected to close by the end of this year. Nuveen stated its board of directors, through investment banker Goldman Sachs, will accept competing proposals through July 19.
Tim Hurd, managing director at Madison, said the company has been looking to acquire asset management companies for the past few years because of their high profit margins, low capital expenditures and overall high return on capital. Nuveen "is our horse" to bet on this sector, he said.
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