Firm settles charges over gift abuse
A Wall Street trading firm agreed to pay almost $10 million on Monday for showering employees of Fidelity Investments with improper gifts to win the mutual fund company’s stock-trading business, in what one regulator called a “nauseating” abuse of the rules.
Jefferies Group Inc. was fined $5.5 million and agreed to pay $4.2 million in disgorgement to federal regulators to settle charges that former employee Kevin Quinn doled out more than $1.6 million in gifts, trips and entertainment that exceeded the $100 annual limit for each individual.
Quinn took wining and dining to a new level of lavishness, even by the indulgent standards of Wall Street, authorities found.
Fidelity traders were flown on chartered aircraft to the 2004 Super Bowl in Houston, where the tab for the weekend -- including pregame parties hosted by Playboy and Maxim magazines -- came to $125,000.
One Fidelity trader and his family were treated to weeklong vacations in Florida for two years running. Quinn even shelled out $75,000 for a trader’s bachelor party in Miami, regulators found, including paying for private chartered flights between Boston and Miami for the bachelor and his colleagues.
“We found activity that was disturbing and, quite frankly, nauseating,” said James Shorris, NASD head of enforcement.
Quinn, 40, agreed in settlements with the Securities and Exchange Commission and NASD (formerly the National Assn. of Securities Dealers) to pay almost $500,000 and to be barred for life from the securities industry.
Regulators discovered Quinn’s spending during a routine audit of Jefferies’ Los Angeles office in 2004. Although now based in New York, Jefferies was formerly headquartered in Los Angeles, where 263 employees are still based.
Boston-based Fidelity, which is the largest mutual fund company in the U.S. and the biggest provider of 401(k) retirement plans, remains under investigation in connection with the gifts, spokeswoman Anne Crowley said.
Nearly two dozen Fidelity traders were disciplined in connection with the receipt of improper gifts, and eight of them have left the company, Crowley said.
Investors in the funds could have suffered if Fidelity traders paid higher prices to Jefferies for stock trades than those that were available at other brokerages. Crowley, however, said there was no evidence that investors were harmed.
“We deeply regret the misconduct and we do not tolerate this type of activity,” Crowley said, but added that “it’s not possible to demonstrate that financial harm occurred to any Fidelity fund or client.”
Quinn was hired by Jefferies in 2002 at a starting salary of $4 million a year. He was given an annual travel and entertainment budget of $1.5 million. Quinn had developed a relationship with Fidelity traders through his years in the institutional sales division at two other brokerages.
His methods apparently generated results: Fidelity’s trading business with Jefferies, which was worth $4 million in 2001, ballooned to $30 million by 2003, according to NASD.
Quinn was terminated in 2004. On Monday, his former supervisor, Scott W. Jones, was fined $50,000 and given a three-month suspension from working for any NASD-registered firm in a management capacity.
Lavish expense-account spending has long been a part of Wall Street life, especially in restaurants and on golf courses, where brokers and others entertain clients in hope of being hired for such things as merger advice and stock trades.
It has been toned down in recent years, but brokerages in the past were willing to spend sumptuously to coax mutual funds to steer business to their firms, said the head stock trader at one large fund firm.
“The people who wanted to abuse the system could tell the broker, ‘I want to play at this golf course, eat at this restaurant and go to this club afterward,’ ” said the trader, who asked that his name not be used. “That was accepted practice.”
Quinn’s attorney, Michael Tuteur, said Jefferies knew everything his client was doing.
“Kevin’s not denying that he did anything wrong [but] he did what his employers wanted him to do,” Tuteur said. “He was hired to do exactly what he did.”
Jefferies said in a statement that it had “enhanced safeguards” to “ensure that employees act with the highest level of professionalism at all times.”
The discovery of Quinn’s spending in 2004 prompted regulators to investigate gift-giving practices at more than 40 securities firms, NASD’s Shorris said.
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Expense account
Regulators say a former employee of brokerage Jefferies Group Inc. made improper gifts to traders at Fidelity Investments, including:
* A four-day 2002 golf outing that included chartered air travel and stops in Las Vegas and Cabo San Lucas. The tab: $225,000.
* Travel and other expenses in connection with a 2003 bachelor party in Miami for a Fidelity trader. The tab: $75,000.
* A 2004 trip to the Super Bowl in Houston that included chartered flights and pregame parties hosted by Maxim and Playboy magazines. The tab: $125,000.
Source: NASD
