Fidelity may face charges over trader's lavish fete

The extravagant bachelor party thrown for a Fidelity Investments trader in 2003 could land the mutual fund company in legal trouble, as well as some of the individuals involved, legal specialists said yesterday.

Fidelity could face civil charges of failing to properly supervise employees because the attendees at the bachelor party for trader Thomas H. Bruderman Jr., included Scott DeSano, who was the boss of the company's stock-trading operations at the time and had an obligation to ensure that company and industry policies against excessive entertainment were being followed, these specialists said.

Yesterday, the Wall Street Journal reported details of the March 2003 fete for Bruderman, which included a yacht cruise and hospitality at the swank Delano Hotel in Miami Beach, entertainment with a dwarf, and two women whom the paper said might be prostitutes. The paper also reported that tabs for various aspects of the party, such as airfare, were picked up by several firms and brokers that do trading business with Fidelity.

DeSano attended parts of the festivities that weekend, the paper reported, and added that sources close to DeSano said the former head trader did nothing inappropriate. DeSano was an usher for Bruderman, who in September 2003 married Sandra Kozlowski, daughter of former Tyco International chief executive Dennis Kozlowski, who was convicted of looting his former firm of $150 million.

Still, just DeSano's being there could be a problem for Fidelity, said Steve Thel, a professor of securities regulation at Fordham University School of Law. He said the level of entertainment at the bachelor party appeared to violate policies that he said Fidelity is supposed to have in place against employees accepting payments in the form of lavish partying, as well as National Association of Securities Dealers rules against brokers giving excessive entertainment.

''When a supervisor knows that his supervised people are contravening Fidelity rules and are receiving payments from brokers that are in contravention of NASD policies, that is a failure to supervise," Thel said.

But an official close to DeSano said the former head trader paid his own way to the party, attended only around one-third of the weekend's festivities and did not observe any misconduct on Bruderman's part, or that of anyone else at the party that would adversely affect Fidelity shareholders. The two were the only Fidelity employees at the party, this official said, and DeSano understood that Bruderman paid for his share of expenses that weekend.

The Bruderman bachelor party and Fidelity's supervisory issues are but one of many angles under investigation at the mutual fund firm. Among the issues under investigation by the US Securities and Exchange Commission is whether Fidelity failed to receive the best deals on stock trades because its traders were instead directing business to those brokers who lavished them with the best gifts and entertainment.

The NASD is looking into whether there were widespread violations within the brokerage community of its rules against excessive gifts. Meanwhile, the US attorney in Boston is conducting a criminal probe of the matter, including whether brokers offered Fidelity traders drugs as a reward for getting the firm's business.

Bruderman left Fidelity in December, when the firm said it had disciplined 14 others, including DeSano, for violations of the firm's gifts and gratuities policies. Bruderman's attorneys did not return calls seeking comment.

DeSano was reassigned last week to another job inside Fidelity that does not involve its trading operation, and five other traders have also left since the investigation began last year.

Spokesman Vin Loporchio said Fidelity could not comment on the investigation. But he said it is ''important to note that we have policies and procedures in place that address professional conduct, as well as conflicts of interest and unlawful behavior, and we monitor regulatory compliance. We have clearly taken prompt action in the gifts and gratuities investigation to address the issues, including dismissals and departures of traders from the firm."

Professor Joseph Franco, director of the financial services law concentration at Suffolk University, said ''the fact that DeSano was at one of these parties is a potentially unfavorable fact for Fidelity. Under securities law, Fidelity has supervisory responsibility to oversee the conduct of its employees, and if the circumstances are sufficiently suspicious, that could be a problem for Fidelity, depending on which supervisory employees knew what at the time."

But Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said it is not obvious Fidelity failed to properly supervise its employees. First, investigators have to establish how well or poorly Fidelity developed and policed policies against such behavior.

Andrew Caffrey can be reached at caffrey@globe.com.