Fidelity Investments Pays $375,000 to Settle FINRA's Charges Involving
Fidelity Investments has agreed to pay $375,000 to settle FINRA’s
allegations that two of the company’s broker-dealers, Fidelity Brokerage
Services LLC and Fidelity Investments Institutional Services Co. Inc.,
promoted and sold over $1 billion worth of investments in a weak
mutual fund by using “unqualified promises of positive future performance.”
The investments took place between 2006 and 2008.
According to FINRA, the Fidelity Ultra Short Bond Fund was heavily invested
in risky subprime mortgages, as well as securities backed by credit card
and auto receivables, during the time in question.
Prior to June 2007, the fund’s shares were worth about $10 each.
Within less than a year, the price per share had fallen to $8.25, which
FINRA says should have made it clear that “the fund was no longer
an appropriate investment for conservative investors seeking to preserve
Despite the fund’s apparent
unsuitability, however, Fidelity’s broker-dealers continued to distribute “unbalanced
and misleading” sales materials that failed to accurately portray
the subprime crisis’ negative impact on the fund. Such misleading
claims included statements that the fund held “high-credit-quality”
Though Fidelity neither admitted to nor denied FINRA’s findings,
the company did agree to the$375,000 fine and a censure. The settlement agreement was reached in July and announced
earlier in September.