Week in Review
July 2, 2007
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.