Fidelity fund costs questioned
Ex-employee says she was forced out after raising issue
A former Fidelity Investments employee claims she was forced out of the Boston mutual-fund giant after raising questions about the accuracy of financial reports to fund trustees.
Papers filed in federal court in Boston by the former employee, Jackie Hosang Lawson, don't give many details but question just how Fidelity calculated the profitability of certain funds.
In her complaint, Lawson alleges Fidelity retaliated against her after she pointed out violations of federal rules "relating to fraud against shareholders of Fidelity mutual funds."
A Fidelity spokeswoman, Anne Crowley said Lawson's claims are "without merit" and said the company intends to defend itself vigorously. She added that Fidelity "considers baseless any suggestion there was any wrongful conduct whatsoever related to the methodologies used to determine fund profitability."
A lawyer for Lawson, Indira Talwani, also declined to elaborate on the claims and said Lawson is declining to comment because Fidelity takes the position that any such comments would violate her confidentiality agreements.
Though lacking in specifics, the filing shows Lawson's battle to bring her concerns about the financial statements of closely held Fidelity to the attention of regulators under the Sarbanes-Oxley Act of 2002, which was originally passed to make public companies more accountable. It also raises questions about how Fidelity allocates costs among its hundreds of mutual funds, a topic of much conversation in the funds industry.
Fidelity has not yet filed a response to the suit.
Technically, a unit called FMR Co. manages Fidelity's well-known mutual funds such as Magellan and Contrafund. As at other fund families, FMR Co. charges fund shareholders fees for costs like trading or marketing the funds, with the approval of a board of fund trustees made up mostly of outsiders led by New York private equity executive Ned C. Lautenbach. Lautenbach referred calls to Crowley, the Fidelity spokeswoman.
Lawson's complaint states she first joined Fidelity 1993 and eventually was made head of its board support group in 2004, which studied profit models. She raised concerns that initially drew praise but also hostile responses from others, she claims, and eventually led Fidelity to give a promotion to another employee "to cover up fund profitability issues."
She continued to raise issues and also contacted federal agencies including the Securities and Exchange Commission, the suit states. (The head of the SEC's Boston office, David Bergers, declined to comment.)
According to Lawson's suit, she was yelled at, berated, and assigned unrealistic deadlines for projects as a result, leading her to resign last fall. She also said Fidelity wouldn't allow her to speak with the trustees. "I am currently in a predicament where I can no longer honestly stand behind the financials that are presented to the Fidelity Mutual Fund Board of Trustees," she wrote colleagues in a resignation letter.
Crowley, the spokeswoman, said Fidelity has provided employees a confidential hotline to report businesses issues and to communicate with the audit committee of the funds' board.
She declined to discuss Lawson's specific complaints but said the methods used to calculate the funds' costs and profits "are regularly reviewed and assessed by the independent auditors of the funds who are engaged by the trustees, not Fidelity."
Ross Kerber can be reached at kerber@globe.com.
