Fidelity System Couldn't Banish Market-Timers

During the three-year heyday of market-timing, the horde of fast-fingered traders that ran roughshod over much of the domestic money-management landscape was never able to crash the walls of one prized fortress, Fidelity Investments.

But the venerable Boston fund company can't claim its sprawling operation never made a cent off their strategies, a situation that probably speaks far more to their ubiquity than Fidelity's motives. While it appears no significant market-timing ever occurred in an in-house Fidelity fund, at least one prolific market-timer was able to use the firm's institutional fund platform to run abusive strategies in funds not managed by Fidelity.

The trading platform is the backbone of Fidelity's investment advisory group, a division that boasts 2,100 institutional customers with $106 billion in assets under management. It was designed as a one-stop shop for Wall Street professionals, where funds from 390 other families trade side by side with the firm's own offerings.

The platform's easy access to a wide array of mutual funds made it an inviting target for timers, who were always on the prowl for new ways to place trades. And because of the uneven oversight that existed among fund families, timers did occasionally have access to the Fidelity platform.

TheStreet.com has learned that Oppenheimer's(OPY) Michael Sassano, one of Wall Street's most successful market-timing brokers, had an account with Fidelity that permitted him to frequently trade shares of non-Fidelity funds for the benefit of his hedge fund customers.

Market-timing, a strategy that tries to take advantage of pricing discrepancies between U.S. and foreign markets, is one of the two main trading abuses that regulators have focused on in the mutual fund probe. While timing is legal, the frequent trades can dilute the value of a mutual fund's assets and incur added administrative costs. Most fund companies say they take steps to prohibit the practice.