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April 8, 2009

Former Fidelity Brokerage Reps Says They Were Pressured to Make Sales That Conflicted With CFP Ethic Codes

A number of Fidelity Brokerage Services LLC representatives who left the company last year say that they were obligated to acquire certified financial planner certification but were also barred from revealing that part of their bonuses were affected by whether they sold certain proprietary products. About half of Fidelity brokers’ compensation is salary and the remainder is in bonuses. The ex-brokers say they were pressured into selling Fidelity’s life insurance products and Portfolio Advisory Services.

One ex-broker said that he had to meet 80% of his sales target in PAS in order to qualify for the investment portion of the manager bonus and not receive an employment warning. Other brokers say that they were monitored weekly and comparisons were made between them and other representatives to spur productivity. Still another ex-broker said they were warned that representatives who didn’t get the CFP by mid-2009 would be let go.

The Fidelity Investments brokerage unit removed the CFP mandate this January, the same month that that the Certified Financial Planner Board of Standards Inc. instituted a new code of ethics and professional responsibility that obligates certified planners to notify clients about any conflicts of interest. A number of ex-Fidelity brokers says that Fidelity Brokerage withdrew the requirement because approximately 18% of the more than 275 account executives with its Private Client Group resigned last year.

Fidelity disputes the former brokers’ accounts and says that attrition isn’t unusual, broker compensation doesn’t conflict with clients’ best interests, and bonuses are not affected by proprietary products’ sales. A company spokesperson also says that the CFP requirement was withdrawn so that qualified candidates wouldn’t be discouraged from joining the private-client unit and the decision had no connection to service offering. Fidelity says it still encourages representatives to get the CFP.

Related Web Resources:
Ex-Fidelity reps claim sales pressure, Investment News, April 5, 2009

Certified Financial Planner Board of Standards Inc.

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March 6, 2008

Fidelity To Pay $8 Million Fine To Settle SEC Charges Regarding Traders’ Improper Gift Taking

Fidelity Investments has agreed to pay an $8 million fine to settle Securities and Exchange Commission charges that the company failed to properly supervise its stock traders that had improperly received gifts. 13 current and ex-Fidelity employees are targeted in the SEC investigation.

The gifts were given to traders by outside brokers who were soliciting Fidelity’s business. Fidelity has had a policy that prohibits employees from engaging in business transactions influenced by gifts received. Employees are also not allowed to receive gifts valued at more $100 over a one-year period.

The SEC alleges that accepting the gifts affected the Fidelity traders’ ability to obtain the best stock trades for Fidelity’s mutual fund customers.

Fidelity, the largest mutual fund manager in the United States, says it will pay $42 million to its mutual funds and pay a comparable amount to institutional clients that were handled by the brokers involved. Fidelity is not accepting or denying wrongdoing by paying the $8 million SEC fine. It also maintains that the government did not find that anyone had been hurt financially by the gift taking.

Expensive Travel Trips & Tickets to Sporting and Musical Events
Former star fund manager Peter Lynch allegedly received almost $16,000 in free tickets to high profile events, including a U2 concert, a Ryder Cup golf match, “The Lion King,” and “The Nutcracker.” One former fidelity trader, Thomas Bruderman, reportedly received $450,000 worth of gifts and travel, as well as marijuana and ecstasy pills from brokers.

Former head trader Scott DeSano reportedly knew these improper activities were taking place. He also received gifts from brokers, including trips on private jets to exclusive golf resorts and excursions to Las Vegas and Mexico. DeSano’s ex-Fidelity supervisor, Bart A. Granier, who has already settled SEC charges, allegedly accepted $38,000 in gifts from outside brokers.

Tickets to Super Bowl games, the World Series, Rolling Stones concerts, and Wimbledon tennis games were also among the gifts that the SEC said Fidelity brokers had improperly received from outside brokers between 2002 and October 2004.

Fidelity says it has taken a number of steps to curb such improper activities, including the creation of stricter gift policies, disciplining or terminating workers, and creating better oversight measures. Fidelity says that the majority of the 13 employees named in the SEC probe no longer work at the company.

If you have suffered a financial loss as a victim of investor fraud, contact Shepherd Smith and Edwards today. One of our stockbroker fraud lawyers would be happy to assist you.

Related Web Resources:

Fidelity Fined in SEC Probe of Private Jets, Escorts, Ecstasy, Bloomberg, March 6, 2008

Fidelity fined $8M in gifts investigation, USA Today/AP, March 6, 2008

Fidelity Investments

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October 17, 2007

Fidelity Investments and The Vanguard Group Offer Retirees Managed-Payout Funds

Fidelity Investments has launched 11 funds focused on generating steady income for retired seniors. The launch followed a similar launch by The Vanguard Group Inc., who will launch three similar funds in the next couple of months. Fidelity and Vanguard are the largest and second largest mutual funds in the country.

The move by both companies will likely force competitors to do the same. Industry experts say that they expect fund companies with a solid 401 (k) plan market to announce similar fund launches.

However, a number of major fund companies have only admitted to closely monitoring open-end managed-payout funds. This type of fund has been part of a number of closed-end funds for awhile. However, closed-end funds only appeal to a small section of investors.

Lipper Inc. says that at the end of August, the collective net asset value of closed-end funds was $259. 28 billion. Closed-end funds are not as popular as open-end mutual funds because they are more complicated. They can trade at a discount or premium to their net asset value.

The Investment Company Institute says that in August, combined net asset value of open-end mutual funds was $11.49 trillion.

Fund advisers are enthusiastic about more open funds with managed-payout features. One of the reasons the new funds offered by Vanguard and Fidelity are generating interest is that they come with low expense ratios. Some skeptics, however, warn that this type of fund can result in abusive and fraudulent investment sales.

Fidelity says that the new funds with managed-payout features will make payouts by using principal. The funds will liquidate when they reach a designated date.

If you have lost money as an investor because you were the victim of fraudulent or abusive investment sales practices, contact Shepherd Smith and Edwards today. One of our experienced securities fraud attorneys will be happy to offer you a free case evaluation.

Related Web Resources:

New Funds for Retirement Payouts, Wall Street Journal, October 14, 2007

Others likely to follow lead of Fidelity, Vanguard, Investment News, October 8, 2007

Vanguard to Broaden Retirement Income Solutions with Three New Managed Payout Funds, Insurance Newsnet, September 27, 2007

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June 22, 2007

News Flash: Brookstreet Securities Closes its Doors

Today was "Black Friday" for Brookstreet Securities, as it closed for business. The firm's 650 independent contractor brokers have been terminated, says Stanley Brooks, President of the firm. Brookstreet clients are left in limbo, many with huge losses in their accounts.

As reported earlier this week, Brookstreet Securities Corp, based in Irvine, California, told its agents that "disaster" had struck and it was in eminent danger of folding. The e-mail communication (previously posted on this site) claimed this was as a result of mark-downs on collateralized mortgage obligation securities (CMOs) by Fidelity's National Financial Services (NFS), which cleared trades and maintained accounts for Brookstreet.

Some of Brookstreet's clients report that their accounts continued to fall in value this week. Yet, if they attempted to do anything NFS told them they must to talk to their (Brookstreet) broker, but their broker was not answering the phone. Meanwhile, Some of these clients' margin accounts slipped into the "red", meaning not only have these investors' funds disappeared but NFS now claims the investors owe it money!

Brooks said the firm had a value of about $17 million at the end of May which has evaporated. He said he turned down several tentative offers to recapitalize the firm. "I am flabbergasted," said Brooks, 59. "My life's work is gone."

William S. Shepherd, founder of Shepherd Smith and Edwards a law firm which represents investors nationwide in claims against financial firms states:

"I have met with and had favorable dealings with Mr. Brooks in the past and consider him to be a decent person. I would be surprised to learn he personally cheated his clients. However, there are apparently many Brookstreet investors whose accounts have also 'evaporated'. Many lost retirement and other savings, meaning their own "life's work is gone". These victims likely face a financial situation worse than that of Mr. Brooks."

We at Shepherd Smith and Edwards have claims pending against Brookstreet Securities, are in the process of filing new claims and are taking steps toward a class action. If you or someone you know has suffered losses, contact us to arrange a free confidential consultation with one of our attorneys.

More information about the situation at Brookstreet Securities

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Posted In: Broker-Dealers , Brookstreet , Class Action Lawsuits , Fidelity

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May 10, 2007

NASD Fines Two Fidelity Brokerage Subsidaries $400,000 for Distributing Misleading Sales Literature Regarding Systematic Investment Plans Sold to Military Personnel

The NASD announced this week that it fined two Fidelity brokerage firms $400,000 for preparing and distributing misleading sales literature promoting Systematic Investment Plans, which were sold primarily to U.S. military personnel. Issuance and sales of new systematic investment plans after these were prohibited by Congress last fall.

The NASD found that between January 2003 and January 2006, the two firms violated NASD advertising rules by preparing and distributing misleading sales literature. From May 2003 through January 2006, the Fidelity firms prepared and distributed a brochure entitled "Time is Money" that included misleading performance claims about its “Destiny Plans”. According to "mountain charts" contained in the brochures, these plans significantly outperformed the S&P 500 Index over a 30-year period. Yet, during the most recent 10- and 15-year periods—the time frame most relevant to current and prospective investors - Destiny Plans substantially underperformed the S&P 500 Index.

The brochures also showed average annual total returns for 1, 5 and 10 years as well as the life of the Plan, without showing comparable returns for the S&P 500 Index. This also created the misleading impression that the plans outperformed the S&P 500 Index when instead that index significantly outperformed the plans.

The Fidelity brokerage firms also used the performance of one class of the shares in charts, when investors could actually only purchase another class which did not perform as well because of higher expenses. The broker-dealers prepared and sent over 10,000 copies of these brochures for use by their registered representatives.

The NASD also found that the Fidelity firms also prepared and distributed a misleading newsletter to over 325,000 of the plan holders with a chart showing plan performance. However, the chart demonstrated performance of the underlying mutual fund portfolio rather than the performance of the plan itself which, after sales fees and expenses were charged, significantly reduced the plan’s performance.

The NASD further found that Fidelity did not adequately supervise the review of the sales literature in light of the unusual features of these products.

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Posted In: Broker-Dealers , Fidelity , NASD Enforcement

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