Fidelity Brokerage Services, LLC (CRD #7784, Smithfield, Rhode Island) and Fidelity Investments Institutional Services Company, Inc. (CRD #17507, Smithfield, Rhode Island) recently submitted a Letter of Acceptance, Waiver and Consent in which the firms were censured and fined $375,000, jointly and severally.
Without admitting or denying the findings, the firms consented to the described sanctions and to the entry of findings that they marketed, sold and/or wholesaled shares in an income mutual fund and, in connection with such activities, created advertising, training and/or wholesaling materials for the fund that were provided to public customers, retail sales firms, used internally or used for institutional purposes within the selling intermediaries.
The findings also stated that the mutual fund included securities backed by, among other things, sub-prime mortgages and credit card and auto loan receivables. After the sub-prime crisis began, the fund’s net asset value (NAV) began to decrease and it became apparent that the fund was no longer an appropriate investment for conservative investors seeking to preserve capital.
Additionally, the findings stated that the firms distributed sales materials that were unbalanced and misleading, contained unwarranted statements and failed to provide a sound basis by which to evaluate the fund’s risks. The findings also included that the firms failed to timely update the sales materials to accurately portray the negative impact of the sub-prime crisis on the value of the fund’s portfolio investments and shares, and contained unqualified promises of positive future performance.
FINRA found that Fidelity Investments distributed certain of these materials to the selling intermediaries. FINRA also found that the firms had procedures in place with respect to the review and approval of sales materials, but the procedures were not reasonably designed to achieve and monitor compliance with applicable laws, regulations and rules. The procedures generally required that a registered principal approve the materials prior to use but did not contain an appropriate system of follow-up and review that was reasonably calculated to ensure the review was adequate. In addition, FINRA determined that Fidelity Investment’s Institutional Services Spotlight Reports were created and used internally; the firm had supervisory procedures concerning such documents that did not require that a registered principal review them prior to use, and the procedures did not provide for adequate surveillance and follow-up to ensure they were being implemented and adhered to. Moreover, FINRA found that as a result, the sales materials failed to provide an accurate and balanced presentation concerning the nature, holdings and risks of an investment in the fund.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
If you have questions about investments you made with Fidelity Brokerage Services, LLC & Fidelity Investments Institutional Services Company, Inc., the securities attorneys of The White Law Group may be able to help. To speak with a securities attorney, please call the firm’s Chicago office at 312/238-9650.
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