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Fidelity Investments on Thursday disciplined 16 employees for violating the mutual fund giant’s conflict-of-interest policies covering gifts from brokers to Fidelity’s traders. The No. 1 mutual company based on assets said two workers were “no longer in Fidelity’s employ,” but did not identify them or say whether they left willingly or were fired. Fourteen others face penalties, including warnings and fines for violating company policies intended to prevent Fidelity traders from steering business to brokers who provided them with gifts, gratuities and business entertainment in order to secure lucrative commissions. Boston-based Fidelity said it discovered violations in an internal review amid an ongoing industrywide probe disclosed last month by the Securities and Exchange Commission and the National Association of Securities Dealers, an industry organization. That probe involves gifts ranging from expensive bottles of wine to trips on private jets to sporting events, including the Super Bowl. Fidelity did not specify what gifts its employees had received. “During the course of our own investigation, we uncovered instances where there were violations of the company’s policies and procedures,” Fidelity said in a statement. “This has caused us deep concern because we do not tolerate wrongful behavior.” Fidelity said it has not found instances in which policy violations “resulted in any financial loss to the Fidelity mutual funds or to any shareholder by adversely affecting the quality of executions received by the Fidelity funds on their trades.” But Fidelity said it is strengthening its gift policies and procedures by restricting instances in which business-related gifts may be accepted. It also is modifying reporting requirements for personal gifts and business entertainment exceeding a certain threshold, and is expanding oversight of its trading. Fidelity said through its actions it hopes that “we and the industry will focus on ending the practice of extensive gift-giving.” Fidelity said it also is reviewing possible restrictions involving family relationships between employees in its investment arm and workers at other firms doing business with Fidelity funds. The company said its review has turned up no instances in which such a family relationship harmed investors. Fidelity, with $1 trillion in managed assets as of Oct. 31, emerged unscathed from the industrywide scandal that began in September 2003 over improper trading practices. But Fidelity has been at the center of the current investigations involving gifts. Jim Lowell, a former Fidelity employee who now edits and owns an independent investment advisory newsletter called Fidelity Investor, said he did not expect Fidelity to be harmed by its admission of gift policy violations. Unlike the mutual fund trading abuses, “this is not giving privileged pricing to one class of clients over another,” Lowell said. “This is a group of people inside Fidelity who for whatever reason were steered by pretty nominal gifts to transact business with the gift givers.” Traders are supposed to act in the best interests of shareholders by doing business with brokers offering the best service and prices, regardless of family relationships or any gifts traders may have received from brokerages. Brokers are prohibited by the NASD from donating gifts of more than $100 to people with whom they do business, and many companies have policies restricting gifts. Fidelity Investments and several brokerages that handle the mutual fund giant’s trading have recently received subpoenas from regulators in the probe disclosed last month by the SEC and NASD. Walter Ricciardi, head of the SEC’s Boston office, declined comment on any pending enforcement investigations, but added, “Sending business to relatives or to those who provide lavish gifts create conflicts of interest and raises serious issues.” Herb Perrone, a spokesman for the Washington-based NASD, also refused comment on Fidelity’s announcement. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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