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Fidelity to Repay $42M As Result of Gift Probe


As a result of an internal probe, Fidelity Investments agreed to repay $42 million, plus interest, to funds whose traders and portfolio managers steered trades to Jefferies & Co., which lavished them with gifts. A final settlement, however, with the Securities and Exchange Commission is still pending.

The company issued a statement on its website indicating that an internal investigation by its independent trustees failed to discover any evidence that the trades resulted in higher commissions. In fact, Fidelity said, "The industry's largest benchmarking consulting firm has established that Fidelity has consistently achieved superior trade execution for its fund shareholders." Due to technological investments and changes to its trading desk, the firm said, it reduced trading costs by $1.5 billion during the 2002-2004 period when the gifts were made.

Last month, Jefferies agreed to pay $9.7 million to settle charges by the SEC and the NASD that it gave $2 million worth of gifts to the Fidelity traders.

Attorneys said Fidelity was wise to have its independent trustees conduct an internal review and to voluntarily repay the money to its funds, for that could pave the way for a smoother, if not smaller, final settlement from the SEC.

The payment "takes the wind out of [the SEC's] sails," Mercer Bullard, founder of FundDemocracy.com, told The Wall Street Journal. It sends a message that Fidelity is handling this adequately on its own, he added.

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