Story on Probe of Fidelity Execs Draws Unusual SEC Response
The Securities and Exchange Commission on Friday took the unusual step of commenting on a report about an agency investigation, saying an article in the Washington Post about Fidelity Investments contained unspecified inaccuracies.
An SEC spokesman said, “It is the commission’s policy not to comment on any specific reviews of the existence or nature of any matter under inquiry. However, today’s Washington Post carried a story regarding a reported investigation by the SEC into the “personal trading” by fund managers at Fidelity. Unfortunately, the article contains inaccuracies which have led to erroneous impressions.”
The story, also published in most editions of The Times, reported that the agency is investigating whether mutual fund managers at Fidelity used the firm’s market power in trading stocks for personal gain. The story quoted unnamed government and legal sources as saying the SEC enforcement division is looking into the trading patterns of at least four managers, including Jeffrey Vinik, who runs the $56-billion Magellan Fund.
It quoted sources as saying the investigation centers on whether the fund managers and analysts traded stocks for themselves to benefit from subsequent buying or selling by Fidelity mutual funds, a practice called “front-running.” Federal securities law prohibits front-running and insider trading.
The story also reported the agency is probing the practices of three former Fidelity employees. It also quoted a Fidelity spokeswoman as saying she was unaware of any investigation.
In a letter to Post Executive Editor Leonard Downie Jr., Fidelity General Counsel and Managing Director Robert C. Pozen said the firm is outraged by the story. It is “flat out wrong,” Pozen wrote. “The Securities and Exchange Commission is not, repeat not, currently conducting an investigation of personal trading by Fidelity or its portfolio managers.”
Downie said, “We are confident about our reporting that the SEC is looking into the personal trading of some Fidelity fund managers.”
Fidelity is the largest U.S. mutual fund.
The SEC issued its statement, knowledgeable sources said, because it is concerned about the impression the article may have created that Fidelity had a serious problem with self-dealing fund managers.
The SEC has reached no such conclusion, the sources said. The commission received more than 100 news media inquiries on the story, they said.
The sources said the mention of inaccuracies in the Post story referred to details and was not intended to imply the story was fundamentally wrong.
The SEC did not want to publicly specify the inaccuracies, the sources said, because that would implicitly confirm other points in the article.
The article said the investigation was a continuation of an SEC probe begun in 1994. It cited sources as saying the probe was given new attention recently, though there was no certainty it would result in enforcement action.
Pozen’s letter said the SEC questioned Fidelity and other firms in the 1993-1994 period but took no action.
“We have not heard from the SEC on those matters in almost two years.”
Fidelity tightened its personal trading rules during that period, Fidelity officials said in the article.
