William Galvin, head of the Massachusetts Securities Division, has filed an administrative complaint against Fidelity Brokerage Services. The firm has been accused of not making a good enough attempt to vet investors’ applications before allowing them to engage in options and margin trading. This led to financial losses for investors.
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The state regulator accused the broker-dealer of having a “halfhearted and lackadaisical attitude” when it came to protecting retail investors. Fidelity Brokerage Services failed to reasonably perform due diligence related to approving customers’ accounts—a violation of Massachusetts securities laws.
According to Galvin’s complaint, Fidelity’s application review system for options and margin trading let customers complete multiple applications, allowing them to modify information until they were approved. For example, one customer applied 13 times in a month, providing inflated financials (among other changed details) that reviewers at the broker-dealer failed to detect.  Galvin also accused the firm of failing to do even the most basic review of customer information, not reasonably training its agents, and neglecting to monitor and enforce its own policies to make sure they complied with Massachusetts securities regulations.
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Because of Fidelity Brokerage Service’s allegedly inadequate supervisory compliance policies and lack of safeguarding, the brokerage firm exposed retail customers to the hazards involving options and margin trading, posing a threat not just to these investors’ financial health but also to the securities markets.
This is especially important considering that the broker-dealer experienced an “explosive growth” in its business in 2021. The complaint noted that as of September 30, 2021, Fidelity Brokerage Services had 30.9 million retail brokerage accounts, 22% higher than during the third quarter of 2020.
Often involving highly leveraged investments, options trading provides the chance of high returns. But it also provides the risk of significant losses. Smartphones make it easier to trade in the securities market and many retail investors attempt to get involved in options trading while not fully comprehending the risks.
William Galvin wants Fidelity Brokerage Services to pay a civil fine, retain an independent compliance consultant, and avoid making these same violations in the future.
Our broker-dealer negligence lawyers are investigating claims of losses by Fidelity customers who may have been unsuitably approved to participate in options and margin trading.
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