Massachusetts securities regulators announced charges against Fidelity Brokerage Services for allowing at least 13 unregistered advisors to use the brokerage’s trading platforms to generate fees for Fidelity and the advisors.
Fidelity Brokerage Services (FBS), a registered broker/dealer, knowingly allowed the practice to continue for 10 years beginning in 2005, according to the complaint filed by Massachusetts Secretary of the Commonwealth William Francis Galvin.
“Fundamentally, registration is at the core of Fidelity’s business and it is inexcusable that they would participate knowingly in unregistered activity,” Galvin said in a 48-page administrative complaint filed with the Massachusetts Securities Division.
Fidelity Investments spokesman Adam Banker said in a statement that Fidelity doesn’t believe its trading platform has “violated any laws or regulation in connection with this matter.”
“We can assure you that we take very seriously the trust investors place with us and our obligation to manage our business in accordance with all relevant laws and financial industry regulation,” Banker said in an email to InsuranceNewsNet.
“We do not believe that Fidelity has violated any laws or regulations in connection with this matter,” he also said. “We look forward to reviewing the details of this matter and addressing them appropriately.”
The unregistered advisors, who are not named, conducted hundreds and sometimes thousands of trades for dozens of clients over the 10-year period ending this summer, according to the complaint.
One advisor, named “Unregistered IA 1,” executed 12,389 trades from 2005 to 2015 in his own Fidelity accounts and about 28,958 trades in this clients’ Fidelity accounts through trades authorized by the broker/dealer, Massachusetts regulators allege.
Over the 10-year span, $732,721in advisory fees were allegedly funneled out of customer accounts managed by one of the advisors, regulators also claim.
The unregistered advisors managed accounts belonging to clients with different asset levels. In one case, the advisor managed 19 accounts with over $9 million in assets.
Even after Fidelity was approached three years ago by regulators questioning the trades conducted through FBS, Fidelity failed to monitor whether advisors with trading authority were registered with a federal of state regulatory agency until July 2014.
“Fidelity’s willful ignorance of and complete failure to detect and prevent unregistered activity has left Massachusetts individual investors, including Fidelity’s own customers, at risk and constitutes a clear case of dishonest and unethical behavior,” the complaint alleges.
When Fidelity revoked trading authorization for the advisors earlier this year, the company did so only after it was issued a subpoena by the Securities Division in June, according to the complaint.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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