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January 26, 2022 at 03:01 PM
What You Need to Know
- FBS recklessly failed to make a good-faith effort to review options and margin applications, the complaint states.
- Failures are especially problematic in light of the explosive growth in FBS' retail brokerage business.
- Younger customers were responsible for opening a substantial number of these accounts.
William Galvin, Massachusetts’ top securities regulator, charged Fidelity Brokerage Services on Wednesday with unethical and dishonest conduct and practices over “rubber-stamping” of options trading applications.
An administrative complaint filed by the Massachusetts Securities Division cites the company’s “halfhearted and lackadaisical attitude” toward safeguarding retail investors, and takes issue with Fidelity’s failure to properly vet customers who applied to be approved for options and margin trading.
Fidelity’s application review system allowed customers to submit multiple applications, each time with the information altered until the customers met the requirements to be approved, the division said.
FBS, a securities broker-dealer and a subsidiary of Boston-based Fidelity Investments, “has repeatedly failed to perform reasonable due diligence in connection with the approval of Massachusetts customer accounts,” the complaint states.
“Specifically, FBS engaged in facially unethical and dishonest conduct in the securities business by recklessly failing to make a good-faith effort to review options and margin applications submitted by individual retail investors. As a result of FBS’s halfhearted and lackadaisical attitude toward safeguarding, the firm granted options and margin approval to Massachusetts customers in violation of Massachusetts securities laws.”
While FBS has more than 30 million retail brokerage accounts, it uses a group of only 50 broker-dealer agents, called the Central Review Team, to review all options and margin trading applications submitted by customers.
