Star US fund manager settles SEC lawsuit over freebies

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The Independent Online

Fidelity's Peter Lynch has made a tidy sum telling the average investor that it is possible to beat the Wall Street professionals if you simply use what you pick up in everyday life.

His reputation as the champion of the little guy has taken a knock since it emerged that he that he improperly accepted some $16,000 (£8,000) in free tickets for sporting events, concerts and theatre performances from brokers touting for business from Fidelity, which is a giant among investment funds.

Mr Lynch, an executive at the firm who used to run the Fidelity Magellan fund, managed to blag tickets to the Ryder Cup golf as well as U2 concerts from the company's trading desk. Mr Lynch is a household name in the US, having written several best-selling books including Beating the Street. Investors should look at dull-sounding companies for hidden value, he suggested, and avoid companies touted as "the next IBM".

He was handed "numerous" free tickets to concerts, theatre and sporting events by Fidelity traders, the Securities and Exchange Commission (SEC) said. Without admitting or denying wrongdoing in the case, he has admitted that he leaned on traders for "occasional help locating tickets".

Mr Lynch, 64, has agreed to hand back the value of the gifts, plus interest totalling more than $20,000. "I never intended to do anything inappropriate, and I regret having made those requests," said Mr Lynch.

Fidelity's former head trader Scott DeSano, as well as 11 employees, accepted more than $1.6m in gifts from brokers eager to get Fidelity business, the SEC said. Fidelity now has to cough up $8m to SEC to settle the case, involving the acceptance of inducements which included a $160,000 junket to Miami, where prostitutes and ecstasy were laid on for a bachelor party.

Fidelity, based in Boston, trades heavily on its reputation for protecting ordinary fund investors. It now needs to do some explaining to its investors. The SEC concluded that the company did not bother to get the best terms for its funds because transactions were passed to brokers with such goodies to hand out as Super Bowl tickets.

A former Fidelity trader named Thomas Bruderman, 39, reportedly received ecstasy pills and marijuana from brokers he was working with as part of a $160,000 bachelor party in Miami in 2003, the SEC said in its complaint. David Donovan, 45, another former broker, took 24 all-expenses paid trips including two first-class flights on Concorde, according to the complaint.

Mr DeSano, the 47-year-old former head trader, was aware that some orders were going to brokers in return for gifts and with whom some Fidelity traders had "romantic relationships", the SEC said. The SEC still has unsettled claims against Mr DeSano, Mr Bruderman and Mr Donovan, plus seven other people associated with Fidelity.

The SEC imposed fines of almost $10m in December 2006 on the Jefferies Group Inc brokerage for lavishing gifts on Fidelity staff with gifts in return for trading business.

Fidelity controls $1.6trn in investments and has 24 million customers. In 2006, the company's trustees fined it $42m after investigating what was described as "improper behaviour". An SEC report into that episode reveals that a broker was asked to buy eight million shares in Tyco International Ltd, a few days before a Fidelity trader was flown by to Houston to attend the Super Bowl. The trades went wrong and cost Fidelity funds close to $18m.