Fidelity Brokerage Services has been hit with a fine for its lapses in supervision that enabled an employee’s misconduct, ThinkAdvisor reports.
The Financial Industry Regulatory Authority fined Fidelity $600,000 in connection with an employee who converted $750,000 over eight years from stock plan customers for his personal use.
FINRA’s settlement letter stated that from December 2012 to October 2020, the “associated person” working in the firm’s corporate stock plan unit was able to siphon funds by changing account data for 37 international clients to reflect his own name and address. He then disbursed 83 unauthorized checks and made 183 unauthorized wire transfers out of the costumers’ accounts.
The matter originated from FINRA’s investigation into the associated person’s conversion of funds from international SPS accounts, after Fidelity reported the misconduct to FINRA.
“The associated person was a member of a team responsible for supporting the day-to-day maintenance of SPS account data, resolving data inconsistencies, and handling data inquiries from companies and their employees,” the order states. “The inquiries were communicated to the associated person by other business personnel. To perform these functions, the firm provided the associated person and his coworkers with access to SPS account data that allowed them to view and change various types of account information such as plan participants’ names, addresses, and bank instructions.”
Fidelity used a workflow monitoring tool to log, track and oversee those changes, but it did not prevent employees from making changes without using the tool, FINRA said. Fidelity’s WSPs prohibited its associated persons from accessing SPS account data “unless necessary to perform their job responsibilities and only permitted changes to SPS account data at the direction of plan sponsors and plan participants,” the order states.
Fidelity was found to be in violation of FINRA rules requiring firms to have reasonable supervisory procedures in place, as well as Rule 2010, requiring that firms maintain high standards of conduct.
Fidelity did not admit or deny the findings, but consented to the fine and a censure. A Fidelity spokesperson said in a statement that it is committed to “operating with integrity” and noted that it had reported its discovery of the employee’s misconduct “promptly” to FINRA and law enforcement officials.
“As acknowledged by FINRA, we also have made enhancements to our supervisory system related to stock plan services,” the statement said.
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.