SEC charges two with defrauding Fidelity on trades
BOSTON, April 16 (Reuters) - The U.S. Securities and Exchange Commission (SEC) filed suit on Wednesday against a former Fidelity Investments trader and a former employee of a broker-dealer firm, charging them with defrauding the investment giant via illegal trades.
In a complaint filed with the U.S. District Court in Boston, the SEC charged ex-Fidelity trader David Donovan Jr. and David Hinkle, an ex-representative of Capital Institutional Services, of gaining access to confidential information about Fidelity's intended trades and profiting by trading ahead of Fidelity.
The fraud involved trades in the stock of Covad Communications Group DVW.A and took place from July through September of 2003, the SEC complaint said.
During that period, Donovan, 45, accessed Fidelity's internal order database on about 107 occasions and obtained confidential information that Fidelity was purchasing, and intended to continue buying, a substantial amount of Covad common stock, the SEC said.
Donovan sought Fidelity authorization to trade Covad stock in his personal account, and when it was denied, caused the stock to be bought in the account of his mother, said the SEC.
It said Donovan communicated with Hinkle, disclosed confidential trading information of Fidelity and its advisory clients and Hinkle bought the stock shortly thereafter.
"Profits accrued to both Hinkle and Donovan's mother's account when they sold out positions in Covad in the weeks following the purchases made during the relevant period," the complaint said.
Hinkle made a profit of about $141,035 on the trades and Donovan's mother's brokerage account profited by about $89,775, the SEC said.
Donovan was forced to resign in March 2005 after the fraud came to light, it said. Hinkle, 35, worked with Capital Institutional Services as an institutional sales representative from July 1996 to April 2004, the SEC said.
A lawyer representing Donovan, a resident of Massachusetts, did not immediately make a comment. Hinkle, a resident of Texas, could not be reached for comment.
"Fidelity's code of ethics places significant restrictions on trading by investment professionals so as to preclude the opportunity for an individual to put their own interests ahead of the interests of the funds," said Anne Crowley, spokeswoman for Fidelity.
Boston-based Fidelity is the world's biggest mutual fund firm with assets of about $1.5 trillion. (Reporting by Muralikumar Anantharaman; Editing by Tim Dobbyn)
