Former Fidelity Trader Liable on Insider Trading

A former Fidelity Investments trader was found liable a federal jury in Boston for insider trading in his mothers’ account for buying a technology stock that Fidelity itself was actively trading.

In a case brought by the Boston office of the US Securities and Exchange Commission, David K. Donovan Jr. of Marblehead was found to have improperly traded shares of Covad Communications Group Inc., in 2003, that created profits for his mother. He obtained confidential information on Fidelity’s internal system that it was buying a substantial amount of Covad stock, according to the SEC’s complaint. Donovan then bought Covad shares for his mother’s account, according to the SEC; she gained by selling the stock a month later, after Covad shares had risen in value.

The jury did not find Donovan’s co-defendant in the case, David R. Hinkle of Texas, liable for insider trading. The case was decided Nov. 20 and made public yesterday.
David Bergers, regional director for the SEC’s Boston office, said, “Holding Wall Street insiders accountable for trading on insider information is critical to maintain the public’s trust. We are pleased with the jury’s verdict.”

Despite the finding, Donovan’s attorney, Raipher D. Pellegrino cq, said his client feels vindicated that “it was clearly established that he never profited or requested profits from any of the trades which were alleged to have been made on inside information.” Further, Pellegrino said Donovan’s mother, Marblehead artist Concetta Donovan, testified at the trial that she did not learn about Covad from her son.

Pellegrino also said, “We are pleased that the jury rejected the SEC’s major claim of insider trading related to broker David Hinkle.”

The SEC filed a brief Tuesday asking the judge in the case, Rya W. Zobel, to order Donovan, 46, to surrender $89,775 in gains his mother reaped on the stock sale, plus more than $39,000 in interest. The regulators also are seeking a penalty of three times that amount, or $269,325, and a permanent order barring Donovan from committing fraud.

Fidelity spokeswoman Anne Crowley said Donovan left Fidelity in March 2005. “This is a matter that we discovered through our own internal reviews and we brought to the attention of the SEC,” she said. “We have a very strict code of ethics that puts significant restrictions on employees’ trading.”

The Commission’s complaint alleged that Donovan was denied permission by Fidelity’s monitoring system to place Covad trades in his own account. He then traded in the account of his mother, a Marblehead artist, instead, the SEC alleged.

Donovan was previously part of a separate investigation by the SEC, in which the agency alleged and others at Fidelity accepted travel, entertainment and gifts from brokerage firms that were looking to obtain business from Fidelity. Donovan settled those charges in an order by the regulators last December. He is currently working as a consultant, outside the securities industry, according to his lawyer.

Source

This entry was posted on Monday, November 30th, 2009 at 3:18 pm and is filed under Insider Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.