Week in Review
March 10, 2008
Fidelity VP Investigated for Entertainment Methods
The Securities and Exchange Commission has filed an order against a top advisor at Fidelity Investments, after a four-year investigation into the inappropriate use of gifts and the entertainment of prospective clients.
Peter Lynch, vice president and director of Fidelity parent company FMR, is accused of using traders on Fidelity's equity desk to score tickets to expensive and often sold-out events, including a U2 rock concert and the Ryder Cup tournament.
The SEC alleges Lynch took 61 tickets for 12 different events at a cost of $15,948. Lynch agreed to pay the amount, plus $4,183 in interest, without admitting or denying wrongdoing, and agreed to cease and desist from such conduct in the future.
"Since retiring from investment management over 17 years ago, I have not placed any trades on behalf of Fidelity with any brokerage firm," Lynch said in a statement. "In asking the Fidelity equity trading desk for occasional help locating tickets, I never intended to do anything inappropriate, and I regret having made those requests."
Fidelity said it will pay an $8 million civil penalty and that Lynch's behavior is not indicative of the ethical standard of the company.
Fidelity spokeswoman Anne Crowley said in an interview with Dow Jones that the order does not indicate any harm done to shareholders.
Buffett Tops Forbes' List of Richest People
Berkshire Hathaway's Warren Buffett has trumped Bill Gates as the world's richest person, according to Forbes magazine.
Forbes estimated Buffett's worth at $62 billion, and noted that his fortune grew by $10 billion last year.
"Even though he is giving away a piece of his fortune each year, the stock of Berkshire Hathaway, the source of Warren Buffett's wealth, has been rising very rapidly," said Steve Forbes, CEO of Forbes.
In June 2006, Buffett said he plans to give away 85% of his fortune to the Bill & Melinda Gates Foundation and four other family charities.
Gates held the No. 1 spot since 1995, after unseating Japanese real estate tycoon Yoshiaki Tsutsumi, who has been sentenced to prison for falsifying financial statements and insider trading. Gates held the top spot for 13 years, but dropped to third place this year, with an estimated worth of $58 billion.
In second place is Carlos Slim, a Mexican telecom tycoon, with an estimated worth of $60 billion.
Forbes said there are 469 billionaires in the U.S., with a combined worth of $1.6 trillion. There are 656 billionaires living outside the U.S., with a combined worth of $2.8 trillion. The rise in billionaires outside the U.S. is partly due to the decline of the U.S. dollar, and the Forbes list is tabulated in U.S. dollars.
Hedge Funds Expand Assets Despite Losses
Assets of the top 10 hedge fund companies in the U.S. grew by more than a third in 2007, despite a combined loss of $24 billion, due to redemptions and faltering performance, the Financial Times reported.
JPMorgan's Asset Management and Highbridge Capital Management remained on top with $44.7 billion assets under management, though the funds lost $8.5 billion over the course of the year, according to a survey by Absolute Return magazine.
Goldman Sachs' problems at its flagship alpha fund and two quant equity funds weighed heavily, dropping Goldman Sachs Asset Management from second place to seventh. The fund lost 27% of its assets in the second quarter and ended the year with $29.2 billion.
Bridgewater Associates and Farallon Capital Management came in second and third, respectively, with approximately $36 billion in AUM.
Renaissance Technologies came in fourth place with $34 billion and Och Ziff Capital Management was fifth with $33.2 billion.
Paulson and Company had the biggest growth last year, surging 306% to $29 billion after an early and dead-on bet against the U.S. subprime mortgage sector.
Bank of America Slashes Some Bonuses
The retail brokerage unit of Bank of America announced it will be cutting the salaries of low-producing brokers and raising those of top performers in an effort to chase wealthier clientele, according to Dow Jones.
Under the new compensation plan, brokers who have been with the firm for at least five years but who fall below the $350,000 production level will be paid between 18% and 31% of their annual output. Previously they made 22% to 33 percent.
"Associates meeting and exceeding performance expectations for their role have the opportunity to be more significantly rewarded from our compensation structure," said Matthew Card, a Bank of America spokesman.
Card said 15% of financial advisors' pay comes in the form of a quarterly discretionary bonus for meeting goals in client referral, contact and satisfaction, as well as compliance.
Brokers who fail to meet their quarterly targets will have their pay reduced by 15%, but if they exceed expectations, they could receive bonuses beyond the typical 18% to 31% of their production.
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