More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Advertising Advisor Services and Credentials Section 206 of the Investment Advisers Act contains the anti-fraud provision of the statute and ensures that RIAs advertising and marketing practices are consistent with the fiduciary duty owed to clients and prospective clients.
In response to the scandal over favors given to some Fidelity mutual fund equity traders and supervisors by certain broker/dealers from 2002 to 2004, Fidelity chairman Ned Johnson apologized to shareholders, customers, clients and employees, and said Dec. 21 that the company would pay $42 million plus interest to its mutual funds "for this misbehavior and the company's failure to stop it"--a penalty recommended by its independent trustees, which included as its head at the time the new Defense Secretary, Robert Gates.
The Trustees' report on the scandal found that "... 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."
Earlier this month, one of those brokerage firms implicated in the scandal--Jefferies Group--agreed to pay a fine of nearly $10 million to NASD and the SEC to settle charges that it illegally spent $2 million in entertainment and other gifts, like expensive golf trips and the use of private jets, on the Fidelity fund traders. Jefferies also agreed to hire an independent consultant to review its compliance procedures.
The Trustees' report is available at
http://personal.fidelity.com/global/content/independent-report.shtml.cvsr?refhp=pr&ut=A47; Johnson's open letter is at