Tickets!!!!!!!!!

Fidelity Fined $8 Million in Probe of `Lavish' Gifts (Update3)

By David Scheer and Sree Vidya Bhaktavatsalam

March 5 (Bloomberg) -- Fidelity Investments will pay $8 million to settle U.S. regulatory claims that Vice Chairman Peter Lynch and a dozen employees accepted Super Bowl tickets, private-jet travel and other gifts from brokers.

The world's largest mutual-fund manager failed to seek the best terms for trades as employees took gifts and had ``romantic relationships'' with outside brokers, the U.S. Securities and Exchange Commission said in a statement today. Lynch, former manager of the flagship Fidelity Magellan fund, former head trader Scott DeSano and 11 other current and former employees accepted more than $1.6 million in perks, the agency said.

``The broker-selection process on Fidelity's equity trading desk was compromised when gifts and lavish entertainment swayed the flow of brokerage business,'' Walter Ricciardi, the SEC's deputy enforcement director, said in the statement.

The settlement ends a three-year investigation that tainted the Boston-based money manager, which oversees $1.6 trillion for 24 million customers and is known for strict internal standards. The closely held company's independent trustees fined Fidelity $42 million in December 2006 after probing what Chairman Edward Johnson III called ``this improper behavior.''

Independent Probe

The trustees' 2006 investigation, released by the SEC today, shows the stakes involved. In one case, a trader used a broker to buy 8 million shares in Tyco International Ltd., days before the broker flew him on a private jet to the Super Bowl in Houston in 2002, the report says. The trades cost the funds $18 million, though that may have been partly due to unpredictable market events, it said.

``While no one can say that Fidelity could have obtained better execution from some other broker,'' the size of the costs show why traders should pick brokers objectively, it said.

Illicit drugs and luxury vacations were also listed among gifts in the SEC's 39-page order.

Former Fidelity trader Thomas Bruderman, 39, allegedly received ecstasy pills and marijuana from brokers ``on a number of occasions,'' the agency wrote. In 2003, his three-day bachelor party in Miami cost brokers $160,000, it said.

Former Fidelity trader David Donovan, 45, took 24 trips in which brokers covered most expenses, according to the complaint. Travel included at least two first-class flights on the supersonic Concorde airliner, it said.

Lynch, 64, received ``numerous'' free tickets to concerts, theater and sporting events via Fidelity's traders, according to the SEC. He agreed to forfeit more than $20,000, representing the value of the enticements, plus interest.

Romantic Relationships

DeSano knew some of the firm's traders steered transactions to brokers who provided entertainment, travel and gifts, or with whom they had family or romantic relationships, the SEC said.

The agency's claims are still pending against DeSano, Bruderman, Donovan and seven other past and current employees.

DeSano's attorney, Jeffrey Rudman in Washington, and Bruderman's attorney, Thomas Kiley in Boston, didn't return phone calls seeking comment. Donovan's lawyer, Raipher Pellegrino, declined to comment.

Fidelity and Lynch didn't admit or deny wrongdoing in agreeing to settle.

``We do recognize the seriousness of the misconduct,'' even though the SEC didn't find Fidelity harmed shareholders or its funds, the company said in a statement. ``The behavior that led to these settlements is not at all indicative of the ethical standards of our company.''

Fidelity disciplined employees involved and took other steps to prevent future misconduct, it said. Most of the employees cited by the SEC have left the company, and none remain on the trading desk.

`The Lion King'

Lynch said in a statement that he had asked the trading desk for ``occasional help locating tickets.'' Events included performances of ``The Nutcracker'' and the ``The Lion King.'' He also got 14 three-day passes to the Ryder Cup golf tournament at the Brookline Country Club in suburban Boston, where he had once been a caddy.

``I never intended to do anything inappropriate, and I regret having made those requests,'' Lynch said. He never worked at the trading desk, and has not placed trades on behalf of Fidelity for the past 17 years, he said.