Ex-Fidelity employees to pay $1m to settle SEC charges

Source: Securities and Exchange Commission

The Securities and Exchange Commission today announced settlements of an enforcement action against eight former employees of Fidelity Investments' equity trading desk, who will collectively pay more than $1 million to settle SEC charges for improperly receiving travel, entertainment, and gifts paid for by outside brokers courting business from Fidelity.

The Commission instituted administrative proceedings on March 5, 2008, against 10 former Fidelity employees, including former vice president and head of the trading desk, Scott E. DeSano. The SEC's orders issued today find that DeSano and former Fidelity equity traders Timothy J. Burnieika, David K. Donovan, Edward S. Driscoll, Jeffrey D. Harris, Christopher J. Horan, Steven P. Pascucci and Kirk C. Smith violated the federal securities laws by accepting prohibited compensation from brokers including among them private jet trips, lodging and premium sports tickets. In addition, the Commission also found that DeSano was a cause of Fidelity's failures to seek best execution for its clients and to disclose conflicts of interest to its clients, and that DeSano failed to supervise the 10 traders.

"By accepting improper gifts from brokers, these individuals squandered the most important commodity in the financial services industry - investor trust," said George Curtis, the SEC's Deputy Director of Enforcement.

"Employees of money managers must keep the clients' interests paramount and avoid putting their personal interests at odds with those of the investors they serve," said David Bergers, Regional Director of the SEC's Boston Regional Office.

The SEC's order against DeSano found that he violated Section 17(e)(1) of the Investment Company Act, was a cause of Fidelity's violations of Section 206(2) of the Investment Advisers Act, and failed to supervise 10 traders, who violated Section 17(e)(1) of the Investment Company Act. The order bars DeSano from associating with an investment adviser or investment company for one year; orders him to pay $106,000 in disgorgement, $36,475 in prejudgment interest, and a $125,000 penalty; and orders him to cease and desist from committing or causing any further violations. DeSano consented to the order without admitting or denying the findings.

The Commission's orders against Burnieika, Donovan, Driscoll, Harris, Horan, Pascucci and Smith find that they violated Section 17(e)(1) of the Investment Company Act, and that Driscoll was also a cause of Fidelity's violations of Section 206(2) of the Investment Advisers Act. The SEC's orders impose censures as to each of these respondents, and order that they cease and desist from further violations. Burnieika, Donovan, Driscoll, Harris, Horan, Pascucci and Smith also settled the charges without admitting or denying the Commission's findings, and will pay disgorgement, prejudgment interest and penalties in the following amounts:

Name Disgorgement Prejudgment
Interest
Penalty
Burnieika $39,000 $13,420.00 $30,000
Donovan $120,816 $42,921.51 $45,000
Driscoll $39,000 $13,549.33 $30,000
Harris $45,000 $15,986.64 $30,000
Horan $63,000 $21,678.86 $30,000
Pascucci $44,339 $15,256.81 $30,000
Smith $56,690 $19,506.89 $30,000
The SEC acknowledges the assistance and cooperation of FINRA.

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