The Massachusetts pension system is the first large institutional investor to publicly make such a move against the giant Boston-based investment company as it was when it sacked Putnam Investments in 2003 as a state money manager for Putnam’s involvement in market timing, the Boston Globe reported.
However, unlike Putnam, regulators haven’t yet charged Fidelity with wrongdoing as part of their probe into whether some Fidelity traders steered business to brokers in exchange for gifts instead of to those offering the best price on trade execution services.
Officials say they want to make sure that two investment accounts totaling nearly $700 million that Fidelity manages for Massachusetts were not harmed by the traders’ activities.”I think it’s important that Fidelity take this seriously,” Peter Schwarzenbach, Governor Mitt Romney’s representative on the pension board, told the Globe. The fund, he said, needs more proof that its two accounts were not damaged and that Fidelity is not ”just covering it up.”
For its part, Fidelity claimed that it is cooperating with the state. ”We understand the Commonwealth is performing the due diligence necessary,” spokeswoman Anne Crowley told the Globe. ”We value the long relationship with them, and will continue to provide information to them necessary to perform due diligence.” A Fidelity policy statement on acceptance of gifts is here .
Massachusettsofficials also want to know why the commissions Fidelity pays to brokerage firms for trading stocks in the state account are $.05 cents a share — nearly double the commissions paid to other domestic stock money managers working for the state.
Before Tuesday, officials were planning to split a $300 million high-yield account from fired money manager W.R. Huff Asset Management Co. equally among four other firms that invest in such debt for the state, including Fidelity. But that plan stalled after the officials learned that two of the 16 traders Fidelity has disciplined for violating its gift policies work on the high-yield trading desk. Fidelity manages $352 million in high-yield debt for the state and $340 million in large-cap stocks.
On Deember. 16, Fidelity revealed it had punished 14 traders with fines and suspensions and that two other stock traders had left the firm for the violations, which lawyers involved in the case said included expensive dinners, trips to big-ticket sporting events such as the Super Bowl, and a bachelor party.
Fidelity has not said what positions the disciplined traders held, and yesterday refused to confirm that two of the traders worked on the high-yield desk.