Fidelity Investments will pay $42 million plus interest to its mutual funds following an independent review that sought to gauge whether lavish gifts from brokers to some Fidelity traders between 2002 and 2004 had resulted in excessive trading costs, said Fidelity spokeswoman Anne Crowley. Fidelity Funds' independent trustees recommended the payment based on that independent review. Fidelity also agreed to "make comparable payments to institutional and other accounts we advise," according to a statement released today.
In a separate statement today, the independent trustees noted that John S. Martin Jr., whom they named to investigate the matter more than a year ago, concluded that while "certain traders had misdirected order flow among the brokerage firms on Fidelity's approved list," it wasn't possible to prove statistically that excessive execution costs for the funds had resulted. Even so, Mr. Martin noted that "any uncertainty should be resolved in favor of the funds," and based on a statistical analysis by an outside economic consultant, he recommended that Fidelity pay the affected funds $40.7 million, plus interest and the expenses of the investigation.
In a third statement, Fidelity Chairman and CEO Edward C. Johnson III apologized for the "improper behavior" that resulted in a number of fines, suspensions and terminations among Fidelity's traders, noting "there is no question that the funds were put at potential risk."
The National Association of Securities Dealers and the SEC began investigations more than two years ago into the acceptance of gifts, gratuities and business entertainment by Fidelity traders from brokers handling Fidelity trades. In his statement, Mr. Johnson said Fidelity officials continue to work with the SEC "to resolve this matter and are hopeful that our agreement with the independent trustees will provide a basis for that resolution."