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October 26, 2015 at 08:23 AM
Massachusetts’ top securities regulator, William Galvin, on Monday charged Fidelity Brokerage LLC of Boston with “dishonest and unethical behavior” for allowing at least 13 unregistered investment advisors to make trades for others through the Fidelity broker-dealer platform, generating fees for Fidelity and the advisors.
In its administrative complaint, the Massachusetts Securities Division charged Fidelity with serving as a “haven from regulatory oversight” for at least 13 unregistered Massachusetts advisors, and also charges Fidelity with breaching “its duty to act honestly and ethically” and breaching “its obligations to observe high standards of commercial honor and just and equitable principles of trade in the conduct of its business.”
Said Galvin in a statement announcing the complaint: “Fidelity, of all companies, knows full well the range of investor protection provisions resulting from regulatory oversight. For them to knowingly allow unregistered activity on their broker-dealer platform is a profound failure of their regulatory obligations.”
The complaint requires Fidelity to cease the practice, to hire an independent consultant to review the matter and make recommended changes to Fidelity’s policies and procedures, to pay an administrative fine and to be censured.
According to the complaint, while Fidelity had policies in place since 2011 that specified “red flag risk warnings” for certain levels of third-party trading, “these were ignored until recently when a total of thirteen individuals were terminated for unregistered activity this year, which coincided with the Securities Division’s investigation.”
In one instance, the complaint states, more than 20 Fidelity customers paid one unregistered advisor who was trading on their behalf $732,271.83 in advisory fees.
