SEC Reportedly Considering Probe of Trades by Fidelity Staff

The Securities and Exchange Commission is weighing whether to launch a formal investigation of Fidelity Investments for possible securities law violations in connection with stock trading by mutual fund managers for their personal accounts, according to industry and government sources.

The sources said they expect the agency’s preliminary examination to be referred to the SEC’s enforcement division within a week.

The SEC action will stimulate more debate over personal trading by mutual fund managers, traders and research analysts say. Earlier this year, a blue-ribbon panel issued a new set of voluntary personal trading guidelines for the industry.

The sources say the new phase of the government’s interest in Fidelity comes after a six-month SEC examination of the mutual fund giant’s books by government accountants, who reportedly found a widespread pattern of high-speed personal trading by some Fidelity money managers.

The government is concerned that Fidelity employees who engaged in rapid trading may have breached their fiduciary duties to the funds’ shareholders, the sources said.

The sources said the SEC’s recent examination of Fidelity raised the question of whether some Fidelity employees may have been “frontrunning,” or trading on privileged information for themselves in advance of a purchase by one of Fidelity’s funds, which would then boost the stock price. An SEC spokesman had no comment, saying, “We neither confirm nor deny the existence of any investigation.”

Fidelity spokeswoman Constance Hubbell said, “The SEC has conducted its routine, annual examination regarding our code of ethics, and to the best of our knowledge, the SEC is not taking any further action at this time.”

Fidelity has been tightening its personal trading rules since November, the company says. In 1993, Fidelity stiffened the rules following instances in which employees of the investment department bought stocks that were subsequently driven up in price when one or more Fidelity funds acquired the shares, according to sources at Fidelity.

Hubbell said Fidelity recently told employees they must do their personal trading through Fidelity’s discount brokerage from now on.