SEC Charges B/D Firm for Improper Gifts to Fidelity Employees

The Securities and Exchange Commission (SEC) charged privately held, registered broker/dealer Lazard Capital Markets LLC with failing to supervise three employees who spent more than $600,000 while 'improperly entertaining' traders at Fidelity Investments.

According to a news release from the SEC, the traders were trying to generate brokerage business. The SEC also charged the three employees and a supervisor for their roles in securities laws violations by Fidelity traders.

Earlier this year, the SEC charged Fidelity and current and former executives and employees for improperly accepting lavish gifts provided by brokers. Among those charged were former Fidelity equity trader Thomas Bruderman.

The agency’s orders issued Thursday found that David Tashjian, the former head of Lazard Capital Markets’ U.S. sales and trading department, and former registered representatives Robert Ward and W. Daniel Williams facilitated Bruderman’s violations of the securities laws by taking him on trips to such destinations as Europe, the Bahamas, the Caribbean, Florida, and Napa Valley, California, often by private plane, and paying for his meals and lodging at high-end restaurants and hotels. According to the orders, Bruderman also was provided with race car driving lessons, adult entertainment, and expensive wine, and approximately $50,000 was contributed toward his elaborate bachelor party in Miami.

The SEC also said that Tashjian and Louis Gregory Rice, former head of Lazard Capital Markets’ U.S. equity sales and trading desk, failed to supervise Ward and Williams during their misconduct.

“Mutual fund traders owe their loyalty and allegiance solely to the funds and their investors. When registered representatives provide mutual fund traders with prohibited travel, entertainment and gifts, it may impair their objective judgment and harm investors,’ said George Curtis, deputy director of the SEC’s Division of Enforcement, in the release.

Preventing Illegal Compensation

The SEC warned that brokerage firms must implement procedures to prevent employees from illegally providing compensation for brokerage business.

The SEC found that Lazard Capital Markets failed to supervise Tashjian, Ward, and Williams and detect or prevent their aiding and abetting violations of Section 17(e)(1) of the Investment Company Act. Lazard Capital Markets consented to the order without admitting or denying the findings, agreeing to be censured and pay disgorgement of $1,817,629 plus prejudgment interest of $429,379.04, and a penalty of $600,000, according to the SEC.

Tashjian, Rice, Ward, and Williams also settled the SEC’s charges without admitting or denying the allegations. The three were ordered to cease from committing or causing any further violations and will pay penalties of $75,000, $50,000, and $25,000, respectively, and will be suspended from associating with a broker, dealer, or investment company for nine months, six months, and three months, respectively. For his supervisory lapses, Rice was ordered to pay a $60,000 penalty and be suspended for a period of six months from associating in a supervisory capacity with any broker or dealer.