Compliance December 22, 2006

Fidelity to Pay $42M into Funds After Report Reveals Brokers' Gifts to Traders

Fidelity Investments has announced it will pay more than $42 million to its funds after a report issued by independent trustees of Fidelity’s board said some of its traders directed business to brokers who provided them with lavish gifts.
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Reuters reports that chairman Edward Johnson apologized to investors in an open letter and said the company will pay “$42 million plus interest to Fidelity Mutual Funds based on an allocation formula to be agreed to with the Independent Trustees.”

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In a statement, Fidelity said it “took strong disciplinary action against those individuals involved in this misconduct, including sanctions, fines, suspensions, demotions and, in appropriate cases, termination from employment. Those responsible for the most serious misconduct have long since left the firm or been reassigned to projects outside the trading desk.’

In 2004, the Securities and Exchange Commission (SEC) began a broad inquiry into whether traders at Fidelity received free trips on private planes to Las Vegas, the Super Bowl, and golf courses in Florida, expensive wine, and other lavish perks from brokers who handled stock trades from the mutual fund company, including the brokerage firm Jeffries Group, Inc. Earlier this month, the SEC also revealed for the first time details of its two-year probe into possible fraud at Fidelity Investments (See More Details Emerge in Fidelity Fraud Probe). Also this month, the NASD announced it had slapped Jefferies & Company with a $5.5-million fine for providing “improper gifts and entertainment” to Fidelity stock traders (See NASD Fines Jefferies $5.5M for “Improper Gifts’ to Fidelity Traders).

The report said it is statistically impossible to prove whether fund investors were cheated during the gifts and gratuities scandal, but certain Fidelity traders had “misdirected” order flows among brokerage firms, according to Reuters. Additionally, the report said “inadequate supervision and other shortcomings exposed the Funds to the potential risks of adverse publicity, loss of credibility with their principal regulators and loss of Fund shareholders.”

Products December 22, 2006

AXA Equitable Releases Fiduciary Info Product

AXA Equitable has unveiled the Fiduciary Toolkit, a resource available through its Retirement Strategies 401(k) product aimed at helping small to mid-size defined contribution plan administrators manage their fiduciary obligations.
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A news release said the Fiduciary Toolkit and its companion CD guide contain required forms and to-do checklists. The new offering guides plan fiduciaries through their obligations on:

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  • naming a fiduciary,

  • selecting plan providers,

  • plan design,

  • a model investment policy statement,

  • election of Employee Retirement Income Security Act (ERISA) 404(c),

  • employee communications,

  • employee education, and

  • investment review.

According to AXA Equitable, the new offering is designed to help those running small and mid-size plans avoid 10 common fiduciary problems, including not:

  • documenting fiduciary decisions,

  • maintaining supporting documentation related to the plan’s investment, administration, monitoring and management,

  • interviewing and gathering all the facts necessary to a make prudent decision regarding the choice of the service provider,

  • interviewing and gathering all the facts necessary to understand the fee arrangements regarding the plan, its service providers and its investments,

  • monitoring the service providers and revisiting the choices of those providers,

  • bidding out the job for service providers and documenting that process,

  • clearly understanding the various responsibilities of service providers,

  • forwarding employee contributions within a reasonable amount of time,

  • understanding the interrelationships of service providers and who is providing what services, and

  • clearly understanding what the plan is invested in, especially if the plan is using investment options such as hedge funds and financial derivatives.

More information about the company is at http://www.axa-equitable.com/.

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