Lazard Capital Management on Thursday settled SEC allegations that it had failed to supervise employees who showered Fidelity traders with improper gifts and entertainment amounting to more than $600,000 (see press release from the SEC below). The settlement is the one of the topics covered Friday's Wall Street Journal Fund Track column.

Without admitting or denying the allegations, Lazard agreed to disgorge of $1.8 million plus prejudgement interest of $429,379 and a penalty of $600,000. Another brokerage firm, Jefferies & Co., settled with the SEC for $9.7 million in 2006.

Fidelity settled for $8 million earlier this year; final settlements with some individuals, including former Fidelity employees, have yet to be approved by the SEC.

According to the commission, David L. Tashjian, former head of Lazard's U.S. sales and trading and former registered reps Robert Ward and W. Daniel Williams took Thomas Bruderman, then an equity trader with Fidelity, on trips, often by private plane, and provided him with race car driving lessons, adult entertainment and expensive wine, and contributed about $50,000 to his bachelor party in Miami.

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SEC Press Release

Washington, D.C., Oct. 30, 2008 — The Securities and Exchange Commission today charged privately-held, registered broker-dealer Lazard Capital Markets LLC with failing to supervise three employees who collectively spent more than $600,000 while improperly entertaining traders at Fidelity Investments in an effort 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 H. Bruderman.

The Commission’s orders issued today found that former head of Lazard Capital Markets’ U.S. sales and trading department David L. Tashjian and former registered representatives Robert A. 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, Calif., 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 Commission also found 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.

"Brokerage firms and their supervisory personnel must reasonably implement procedures to prevent employees from illegally providing compensation for brokerage business. The Commission will hold them accountable when they fail to do so," said David P. Bergers, Regional Director of the SEC’s Boston Regional Office.

The Commission’s order against Lazard Capital Markets found that the firm 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.

Tashjian, Rice, Ward, and Williams also settled the SEC’s charges without admitting or denying the allegations. Tashjian, Ward, and Williams were ordered to cease from committing or causing any further violations 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.

The Commission acknowledges the extraordinary cooperation of Lazard Capital Markets in this matter, and also acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA).

 

Edited by: Armie Margaret Lee


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