Fidelity units fined $3.75m in NASD probe

Four Fidelity Investments brokerage units were fined a total of $3.75 million, regulator NASD said yesterday, citing broad record-keeping lapses it said it uncovered while probing the lavish gifts some company traders accepted from outside brokerages.

The penalty by the body, formerly known as the National Association of Securities Dealers, was a fraction of the $42 million Fidelity was prompted to pay its own shareholders after an internal investigation.

Specialists said the contrast reflected both NASD's limited jurisdiction over the Boston mutual fund giant and its determination to send a message.

"The dollar amount of the fine is nothing to them," said Jeffrey Haas, who teaches mutual fund regulation at New York Law School. "It's more of a slightly painful pinprick to tell Fidelity that 'we're serious about compliance.' "

Both investigations aimed to get to the bottom of the gifts that traders were allegedly given to win their business, including the lavish golf outings and expensive bottles of wine that were provided by brokerage Jefferies & Co. In December, Jefferies agreed to pay more than $10 million over the matter.

Yesterday, the NASD said in probing the same area it found, among other things, that poor controls allowed 1,100 Fidelity employees to maintain their qualifications to work with securities improperly, that Fidelity failed to assign supervisors to 1,000 people, and that it failed to keep the e-mails of 1,900 people.

Fidelity did not admit to or deny the NASD claims, but consented to the findings to settle the investigation, the regulator said. Fidelity's chairman, Edward C. Johnson III, already has issued a rare public apology over the traders' conduct, and the company has disciplined roughly two dozen employees.

Yesterday, Fidelity spokeswoman Anne Crowley said that in many cases employees had kept NASD registrations from prior jobs within Fidelity or at other companies. She said Fidelity has put in place additional monitoring to avoid problems in the future, and noted the company has tightened its gifts policies and its compliance procedures. The issues cited by NASD had no impact on clients or fund shareholders, she said.

NASD enforcement head James S. Shorris said that while the agency does not comment on ongoing investigations, "With respect to Fidelity in this area, we don't anticipate [further] actions arising out of this set of circumstances." However, NASD's filing states it found the Fidelity traders received gifts from multiple firms seeking their business, which could mean more settlements are in the works with those firms.

Federal officials, including the Securities and Exchange Commission, continue to look into the matter.

NASD rules require exams for people who trade or sell securities, but not everyone is permitted to keep their credentials without more testing, depending on their job functions. NASD found that, in some cases, Fidelity permitted certain new employees to "park" their NASD licenses. In effect, the practice allowed those individuals to rejoin a brokerage at a later date without taking the test -- in one case, nearly 15 years longer than allowed.

Ross Kerber can be reached at kerber@globe.com.