Washington, D.C., and New York, Aug. 3, 2004 – Read all today’s legal news, law, law firm news, legal research at LAWFUEL The U.S. Securities and Exchange Commission and the New York Stock Exchange today announced the initiation and settlement of enforcement actions against Fidelity Brokerage Services, LLC as a result of the alteration or destruction of documents in numerous Fidelity Brokerage branch offices. In settlement of these actions, Fidelity Brokerage will pay a total of $2 million, consisting of a $1 million civil penalty imposed by the SEC and a $1 million fine imposed by the NYSE. In addition to these coordinated enforcement actions, the NYSE separately took disciplinary actions in related cases against seven individuals.
In a joint investigation, the SEC and the NYSE found that between January 2001 and July 2002, Fidelity Brokerage violated the broker-dealer record-keeping requirements of the federal securities laws because employees in at least 21 of its 88 branch offices altered or destroyed the firm’s books and records. The violations related to Fidelity Brokerage’s annual internal inspections, which were designed to determine whether branch offices were complying with the firm’s policies and procedures, NYSE rules, and the federal securities laws. The firm’s managers pressured branch office employees to obtain perfect inspections and gave advance notice of when the inspections would occur. Certain Fidelity employees took advantage of the advance notification and improperly prepared for the inspections.
In preparing for these inspections, the employees discovered that some branch office records were incomplete or not completed in accordance with firm policies and procedures. The employees then altered or destroyed the records so that the inspectors would not discover the incomplete records. The records included new account applications, letters of authorization, and variable annuity forms maintained at the branch offices.
These actions were not discrete or isolated. At least 62 employees engaged in some form of this conduct in at least 21 branch offices, primarily in the firm’s Western region. The conduct caused Fidelity Brokerage to maintain inaccurate or incomplete books and records in violation of the federal securities laws and NYSE rules.
Randall R. Lee, Director of the SEC’s Pacific Regional Office, said, “This widespread conduct revealed a serious failure in Fidelity Brokerage’s compliance culture and in its supervision of its branch office employees. Our action emphasizes the critical need for brokerage firms to adopt effective compliance systems to ensure that they accurately maintain and preserve their books and records.”
“Destroying and ‘cleaning up’ files in advance of internal inspections or NYSE examinations corrupts the integrity of the regulatory process and will not be tolerated,” said Susan L. Merrill, Chief of Enforcement at the NYSE.
Today, the SEC instituted an administrative proceeding against Fidelity Brokerage. In addition to finding that Fidelity Brokerage violated the broker-dealer books and records provisions of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4 thereunder, the SEC also found that Fidelity Brokerage failed reasonably to supervise the employees who altered or destroyed the records. The SEC’s order censures Fidelity Brokerage, orders it to cease and desist from violating the above provisions, and orders it to pay a $1 million civil penalty. As part of its settlement, Fidelity Brokerage neither admitted nor denied the SEC’s findings. In determining to accept Fidelity Brokerage’s settlement offer, the SEC considered remedial acts promptly undertaken and cooperation afforded its staff.
On August 2, the NYSE’s hearing panel decision against Fidelity Brokerage became final. The NYSE hearing panel censured Fidelity Brokerage and ordered it to pay a $1 million fine. Fidelity Brokerage neither admitted nor denied the NYSE’s findings. In addition to the joint investigation and coordinated enforcement actions involving Fidelity Brokerage, the NYSE separately took disciplinary actions in related cases against seven individuals, including six former registered representatives of the firm (at the firm’s Tigard, Oregon branch office) and one former customer service representative (at the Salt Lake City, Utah branch office), namely: Stephanie Arpin-Meier of Yukon, Okla.; Robert Bierman of West Linn, Ore.; Bradley Kemp Fisher of Lake Oswego, Ore.; Robert Larry Lockwood of Tigard, Ore.; Robert Justin McDonald of Portland, Ore.; Tyler Wayne Obray of Cedar Hill, Ore.; and John A. Leonard of Bountiful, Utah, the customer service representative. In addition, NYSE disciplinary proceedings are currently pending with respect to the branch office managers of the Tigard and Salt Lake City branch offices.
The NYSE hearing panel found that during an internal inspection at the Tigard branch in July 2002, the six registered representatives altered records of their member firm employer after the fact, thereby causing their member firm employer to preserve inaccurate books and records. The hearing panel also found that during an internal inspection at the Salt Lake City branch in July 2002, the customer service representative concealed documents from the firm. The NYSE imposed the following penalties: on Fisher and McDonald, a censure and three-month bar; on Arpin-Meier, Bierman, Obray, and Leonard, a censure and two-month bar; and on Lockwood, a censure and one-month suspension. All seven individuals consented to these penalties without admitting or denying guilt.
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Contacts: Securities and Exchange Commission
Sandra J. Harris, Associate Regional
Pacific Regional Office
Michele Wein Layne, Assistant Regional
Pacific Regional Office
New York Stock Exchange
Christiaan Brakman, NYSE Media Relations