Jefferies Group Inc agreed to pay about $9.7 million to settle charges it lavished $2 million worth of gifts, travel and entertainment to win trading business from mutual fund giant Fidelity, the US Securities and Exchange Commission said on Monday.
The broker-dealer agreed to pay $4.2 million to settle the SEC charges, and $5.5 million to settle related charges with securities regulator NASD.
"The value of improper gifts and entertainment in this case is unprecedented," James Shorris, head of enforcement at the NASD, said in a statement.
The SEC also settled with Scott Jones, Jefferies' director of equities, and Kevin Quinn, the company's former senior vice president and equity sales trader, on related charges.
NASD permanently barred Quinn from associating with any broker dealers in any capacity. It also fined Jones, Quinn's supervisor, $50,000, suspended him for three months from working as a supervisor and banned him from supervising entertainment, gifts or travel for two years.
"This relates to the activities of a trader Jefferies terminated for cause. There was no evidence that Jefferies knew what the trader was doing," Jefferies attorney Bruce Baird said.
Jefferies, Quinn and Jones settled the actions without admitting or denying the allegations, but consented to the entry of NASD's findings. An attorney for Jones declined to comment, while a lawyer for Quinn could not be reached.
"This is the first phase in the resolution of the investigation that commenced two years ago. None of the Fidelity employees referenced in the settlement continue to work on the trading desk and many are no longer employees of the company," Fidelity spokeswoman Anne Crowley said.
NASD said Jefferies was fined for providing more than $1.6 million in improper gifts and entertainment to equity traders employed by Fidelity between September 2002 and October 2004. NASD rules say broker-dealers cannot spend more than $100 a year per individual working for customers.
Yet Jefferies gave Quinn, who received more than $4 million a year compensation in 2002 through 2004, an annual travel and entertainment budget of $1.5 million to entertain Fidelity traders, with the goal of increasing trading orders.