NASD Fines Jefferies $5.5M for ‘Improper Gifts’ to Fidelity Traders

The regulatory agency said in a news release the fine against the New York-based brokerage firm was for giving more than $1.6 million in such gifts between September 2002 and October 2004, including lavish trips, private chartered flights, expensive hotel accommodations, weekend golf outings and tickets to the 2004 Super Bowl.

NASD also permanently barred former Jefferies trader Kevin Quinn from associating with any NASD-registered firm in any capacity and fined Scott Jones, Quinn’s former supervisor, $50,000 and suspended him for three months from associating with any NASD-registered firm in a supervisory capacity. Jones is also prohibited from supervising business entertainment, gifts or travel for the next two years.

Jefferies dismissed Quinn in October 2004 over his improper expenses, according to news reports.

“The value of improper gifts and entertainment in this case is unprecedented,” said James Shorris, NASD executive vice president and head of enforcement, in the news release.“NASD’s gift and gratuity rules were designed to prevent just the sort of conduct at issue here, which threatens the integrity of the relationship between a brokerage firm and its institutional customer. That this customer – a mutual fund manager – was itself a fiduciary only aggravates the already egregious circumstances in this case.”

According to the news release, NASD found that in 2002, Jefferies hired Quinn as an institutional sales trader in its Equity Division and agreed to pay him an annual base salary of $4 million in 2002 and 2003, and $4.75 in 2004.The firm also provided Quinn with an annual travel and entertainment budget of $1.5 million to be used to entertain Fidelity traders to obtain order flow for the Jefferies Equity Division.

The regulators said Jefferies, acting through Jones, routinely and repeatedly reimbursed Quinn for gifts prohibited by NASD rules, which Quinn provided to Fidelity traders. NASD rules limit the value of gifts that firms and associated persons may give to customers of the firm – such as Fidelity and its traders – to $100 per individual recipient per year.

Spending Examples

Examples of the types of gifts and entertainment Jefferies, acting through Quinn, provided to Fidelity traders include:

• to one Fidelity trader, in 2002, a private chartered flight from Bedford, Massachusetts, to Bermuda at a cost greater than $17,000; in 2003, private chartered flights from Boston to Los Angeles and Florida, at a cost of more than $70,000 and $31,000, respectively; and in 2004, golf clubs, for which Quinn paid more than $500 and a private chartered flight from Bedford, Massachusetts to Puerto Rico at a cost of more than $23,000.

• to another Fidelity trader, in 2002, tickets to the Wimbledon tennis tournament at a cost exceeding $19,000, and eight bottles of wine at a cost of $5,900; in 2003, tickets to the men’s and women’s Wimbledon tennis finals at a cost of more than $31,000, tickets to a Justin Timberlake/Christina Aguilera concert at a cost of $1,200, tickets to the US Open tennis tournament at a cost exceeding $7,000 and 12 bottles of 1993 Chateau Petrus wine at a cost exceeding $7,500; and, in 2004, tickets to Wimbledon and hotel accommodations for the event at the Lanesborough Hotel in London, for which Quinn paid more than $38,000 and $12,000, respectively.

NASD further found that despite the “exceptional annual travel and expense allowance” it gave Quinn, Jefferies failed to establish and maintain an adequate supervisory system, including adequate written supervisory procedures, to ensure reasonably that Quinn did not use the budget in violation of NASD rules.

NASD also ordered Jefferies to retain an independent consultant to conduct a comprehensive review of the firm’s policies, procedures and training relating to gifts and entertainment and to adopt recommended improvements.

In recent years, the SEC has also investigated whether a number of brokerage firms had inappropriate entertainment budgets for Fidelity as well as employee expense reimbursements.