finra

FINRA

 

For Release:
Contacts:
Monday, December 4, 2006
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464

 

 

NASD Fines Jefferies & Company $5.5 Million for Providing Improper Gifts and Excessive Entertainment to Fidelity Traders

Washington, D.C. — Washington, D.C. - NASD announced today that it has fined Jefferies & Company, Inc., of New York, $5.5 million for providing more than $1.6 million in improper gifts and entertainment to equity traders employed by FMR Co., Inc., an investment advisor to the Fidelity family of mutual funds, between Sept. 3, 2002, and Oct. 11, 2004. The improper gifts to those Fidelity traders exceeded $600,000 and included private chartered air travel, non-promotional sports-related merchandise and expensive bottles of wine. The impermissible entertainment totaled more than $1 million and included lavish trips, private chartered flights, expensive hotel accommodations, weekend golf outings and tickets to the 2004 Super Bowl.

As part of the action announced today, NASD also permanently barred former Jefferies trader Kevin Quinn from associating with any NASD-registered firm in any capacity. In addition, it fined Scott W. Jones, Quinn's former supervisor, $50,000 and suspended him for three months from associating with any NASD-registered firm in a supervisory capacity. Jones is also prohibited from supervising business entertainment, gifts or travel for the next two years. NASD also ordered Jefferies to retain an independent consultant to conduct a comprehensive review of the firm's policies, procedures and training relating to gifts and entertainment, and to adopt recommended improvements.

"The value of improper gifts and entertainment in this case is unprecedented," said James S. Shorris, NASD Executive Vice President and Head of Enforcement. "NASD's gift and gratuity rules were designed to prevent just the sort of conduct at issue here, which threatens the integrity of the relationship between a brokerage firm and its institutional customer. That this customer -- a mutual fund manager -- was itself a fiduciary only aggravates the already egregious circumstances in this case."

NASD found that in 2002, Jefferies hired Quinn as an institutional sales trader in its Equity Division and agreed to pay him an annual base salary of $4 million in 2002 and 2003, and $4.75 in 2004. The firm also provided Quinn with an annual travel and entertainment budget of $1.5 million to be used by Quinn and his team to entertain Fidelity traders to obtain order flow for the Jefferies Equity Division. Jefferies routinely and repeatedly reimbursed Quinn for gifts prohibited by NASD rules, which Quinn provided to Fidelity traders. NASD rules limit the value of gifts that firms and associated persons may give to customers of the firm - such as Fidelity and its traders - to $100 per individual recipient per year. Examples of the types of gifts Jefferies, acting through Quinn, provided to Fidelity traders include:

  • To one Fidelity trader, in 2002, a private chartered flight from Bedford, MA, to Bermuda at a cost exceeding $17,000; in 2003, private chartered flights from Boston to Los Angeles and Florida, at a cost exceeding $70,000 and $31,000, respectively; and in 2004, golf clubs, for which Quinn paid more than $500 and a private chartered flight from Bedford, MA, to Puerto Rico at a cost exceeding $23,000.

  • To another Fidelity trader, in 2002, tickets to the Wimbledon tennis tournament at a cost exceeding $19,000, and eight bottles of wine at a cost of $5,900; in 2003, tickets to the men's and women's Wimbledon tennis finals at a cost exceeding $31,000, tickets to a Justin Timberlake/Christina Aguilera concert at a cost of $1,200, tickets to the U.S. Open tennis tournament at a cost exceeding $7,000 and 12 bottles of 1993 Chateau Petrus (Pomerol) wine at a cost exceeding $7,500; and, in 2004, tickets to Wimbledon and hotel accommodations for the event at the Lanesborough Hotel in London, for which Quinn paid more than $38,000 and $12,000, respectively.

  • To a third Fidelity trader, in 2002, a portable DVD player at a cost of approximately $1,000; in 2003, six bottles of 1998 Opus One wine, at a cost exceeding $2,600; and, in 2004, a private chartered flight from Bedford, MA, to Providenciales, Turks and Caicos Islands, at a cost exceeding $47,000.

Quinn did not accompany any Fidelity trader on any of the gifted flights or to any of the events identified as a gift.

NASD also found that Jefferies, acting through Jones, routinely approved and reimbursed Quinn for entertainment that was inappropriate, excessive and that raised an issue of propriety. During the period Jefferies employed Quinn, it reimbursed Quinn for more than $1 million for expenses he incurred while entertaining Fidelity traders. Examples of that entertainment include:

  • In 2002, Quinn entertained several Fidelity traders by treating them to a four-day golf outing in various locations on the West Coast (the "Fall Classic"), including Las Vegas, and Cabo San Lucas, Mexico. Quinn paid more than $225,000 for, among other things, private air charter flights between each destination and lodging for his guests, including as much as $5,000 per night, per bungalow at the Bellagio Hotel in Las Vegas, and a similar amount for each of two villas he used at the Esperanza Resort in Cabo San Lucas. In 2003, Quinn again used the Fall Classic to entertain Fidelity traders at a cost exceeding $140,000. Quinn flew his guests to Las Vegas and Scottsdale, AZ by private air charter and paid for their lavish hotel accommodations.

  • In 2003 and 2004, Quinn entertained one Fidelity trader by treating the trader and his family to a one-week vacation in Florida with Quinn and his family, for which Jefferies reimbursed Quinn more than $93,000 and $64,000, respectively. For each of the vacations, Quinn provided the Fidelity trader and his family a roundtrip private charter flight between Florida and Massachusetts, as well as costly lodging, meals and various additional resort expenses at the Breakers Hotel in Palm Beach, Florida.

  • In 2003, in connection with a bachelor party in Miami for a Fidelity trader, Quinn paid more than $75,000 for a limousine service and private roundtrip chartered flights between Boston and Miami for several Fidelity traders, including the bachelor and other guests.

  • In 2004, Quinn invited several Fidelity traders to join Quinn and another Jefferies trader at the Super Bowl in Houston, where Quinn paid more than $125,000 for Super Bowl weekend-related expenses for the group. Weekend expenses included Maxim and Playboy pre-game parties, a car service, private round-trip chartered flights, lodging and tickets to the game.

NASD further found that despite the exceptional annual travel and expense allowance it gave Quinn, Jefferies failed to establish and maintain an adequate supervisory system, including adequate written supervisory procedures, to ensure reasonably that Quinn did not use the budget in violation of NASD rules. Moreover, Jefferies, acting through Jones, failed to supervise reasonably Quinn's use of the travel and expense budget.

 

Jefferies, Quinn and Jones settled the actions without admitting or denying the allegations, but consented to the entry of NASD's findings.

 

Following a two-year review of industry gifts and gratuities practices by registered firms, NASD today issued Notice to Members 06-69, to provide guidance for complying with gifts and gratuities rules. The results of NASD Enforcement's examination of industry practices are detailed in its Report on Examination Findings Regarding Gifts and Gratuities.

 

Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm through NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2005, members of the public used this service to conduct nearly 4.3 million searches for existing brokers or firms and requested more than 194,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to http://www.nasdbrokercheck.com. Investors can also access this service by calling (800) 289-9999.

 

NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business-from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.