The Securities and Exchange Commission has notified Fidelity Investments that it is considering bringing a civil complaint against Fidelity over its gift-giving and entertainment practices. Fidelity acknowledged in July it had received a Wells Notice, which, under the SEC's procedures, indicates that its staff has made a preliminary decision to recommend that the SEC bring a civil action against Fidelity. In a statement, Fidelity said it has been cooperating with the SEC regarding inquiries into the ongoing gifts and gratuities investigation, and that it intends to “vigorously defend ourselves against any allegations that we believe are not supported by relevant facts and data.”
Regulatory agencies like the SEC and NASD (formerly known as the National Association of Securities Dealers) have launched ongoing probes into Wall Street gift-giving and entertainment practices, and Fidelity appears to be a prime target. According to published reports, regulators are investigating lavish trips and gifts Fidelity employees allegedly received from brokerage houses, including golf events, tickets to the Wimbledon Championships at the All England Lawn Tennis and Croquet Club in London, and thousands of dollars of expensive wine.
For the regulators, the issue is whether these practices compromise the ability of brokers to send business to mutual fund companies and other money managers based on price and service. According to an article in the Wall Street Journal, these concerns have led the regulators to begin circulating proposed changes to gift and entertainment rules.
As they stand now, these rules, particularly regarding entertainment, are fairly broad. For example, the NASD allows business entertainment that is “neither so frequent nor so extensive as to raise any questions of propriety.”
According to the Wall Street Journal, there are several suggestions on the table for new gift and entertainment guidelines, ranging from limits of $350 for per-event spending without internal executive pre-approval, to a complete ban on client entertainment. Neither NASD nor the SEC has made any official statements about if and when they expect new regulations to be released.