Fidelity May Face SEC Suit Over Gifts

Fidelity Investments said Monday that it might be sued by the Securities and Exchange Commission for violating rules on taking gifts from brokers, in what would be a rare legal rebuke of the world’s largest mutual fund company.

The SEC has been investigating whether brokers seeking trading business plied Fidelity employees with golf outings, expensive wine and trips to events including the Super Bowl.

The agency’s Boston office may recommend civil action, Fidelity said in a statement.

Fidelity, which manages $1.1 trillion, has had few brushes with the SEC during the last decade. The closely held firm isn’t among about 20 fund companies tainted by the scandal over abusive trading strategies the companies allegedly permitted for favored investors in recent years.

Fidelity said it was cooperating with the SEC and hoped to resolve the matter quickly. “We intend, however, to vigorously defend ourselves against any allegations that we believe are not supported by the relevant facts and data,” the firm said.

The NASD, which is the brokerage industry’s self-regulatory group, and the U.S. attorney’s office in Boston also are investigating whether Fidelity, one of Wall Street’s biggest customers, directed business to brokers who provided gifts or entertainment.

Five Fidelity traders have left the firm and 16 others have been disciplined since the investigations became public in October.

NASD rules prohibit brokers from giving gifts valued at more than $100 to mutual fund employees. Fidelity rules ban its workers from taking more than that amount in gifts in a calendar year from existing or prospective vendors or suppliers.

“We uncovered instances where there were violations of the company’s policies and procedures around gifts and gratuities,” Fidelity said.

“This caused us deep concern because we do not tolerate wrongful behavior, and we have taken prompt action to address violations of our policies and procedures,” it said.

“It doesn’t look like it’s something that has materially harmed investors,” said Eric Kobren, executive editor of Fidelity Insight, an independent newsletter that tracks the firm. “On the other hand, even a small indiscretion does hurt trust.”