Jefferies agreed to pay about $9.7 million to settle charges that it lavished $2 million worth of gifts, travel and other entertainment to win trading business from mutual fund giant Fidelity, the U.S. Securities and Exchange Commission said.
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," said James Shorris, head of enforcement at the NASD, 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 said it permanently barred Quinn from associating with any NASD-registered firm in any capacity. It fined Jones, Quinn's supervisor, $50,000 and suspended him for three months from working in a supervisory capacity. Jones also is banned by NASD from supervising entertainment, gifts or travel for the next 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.
NASD said Jefferies was fined for providing more than $1.6 million in improper gifts and entertainment to equity traders employed by FMR Co., investment adviser to Fidelity mutual funds, between September 2002, and October 2004.
NASD rules say broker-dealers can't spend more than $100 a year per individual working for customers.
Yet Jefferies gave Quinn, who received more than $4 million compensation a year in 2002 through 2004, an annual travel & entertainment budget of $1.5 million to entertain Fidelity traders, with the goal of increasing trading orders.
In one instance in 2002, Jefferies gave a Fidelity trader a private flight from Massachusetts to Bermuda costing $17,000. A year later it flew the trader to Los Angeles and Florida for $70,000 and $31,000, respectively, gave the trader $500 golf clubs and a flight to Puerto Rico costing $23,000.
Another Fidelity trader received Wimbledon tennis tournament tickets costing $19,000, eight bottles of wine at a cost of $5,900, tickets to a Justin Timberlake-Christina Aguilera concert at a cost of $1,200, and tickets to the U.S. Open tennis tournament costing more than $7,000.
NASD also said it discovered some gifts that also crossed the lines of propriety. Quinn in 2003 paid more than $75,000 for a limousine and chartered flights as part of a bachelor party excursion in Miami for a Fidelity trader.
And in 2004, Quinn spent $125,000 to take several Fidelity traders to the Super Bowl. A weekend of entertainment included taking the traders to parties sponsored by Maxim and Playboy magazines.
NASD ordered Jefferies to hire a consultant to review its policies and procedures related to gifts and entertainment.