Fidelity to Pay Funds $42 Million After Traders Took Gifts

The company agrees payment is appropriate even without proof funds were harmed.
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Fidelity Investments

has agreed to pay $42 million to its mutual funds related to the discovery that a number of its equity traders accepted lavish gifts and entertainment from brokerage firms between 2002 and 2004.

The payments are being made at the recommendation of a group of independent fund trustees who conducted an investigation of the activity.

Fidelity said in a statement posted on its Web site Thursday that it agreed with the independent trustees that the payment was appropriate "in spite of the absence of proof that the funds experienced diminished execution quality."

The company noted in the release that it has already taken "strong disciplinary action against the individuals involved in the misconduct, including sanctions, fines, suspensions, demotions and, in appropriate cases, termination of employment."

Fidelity has also agreed to make comparable distributions to institutional accounts and other accounts it advises, and to pay the costs of the independent trustees' investigation.

Edward C. Johnson III, Fidelity's chairman, apologized to shareholders in a separate letter that was also posted on the company's Web site.

The National Association of Securities Dealers and the

Securities and Exchange Commission

are still investigating the activity. Johnson said in his letter that Fidelity continues to work with regulators and that the company hopes its agreement with the independent trustees "will provide a basis for that resolution."