The U.S. Securities and Exchange Commission has charged Boston-based fund manager Fidelity Investments and 13 current or former employees, including legendary portfolio manager, Peter Lynch, for taking improper benefits from brokers seeking its trading business.

The SEC says it has charged the firm and employees, including high-ranking executives, for improperly accepting more than US$1.6 million in travel, entertainment, and other gifts paid for by outside brokers courting the massive trading business Fidelity generates on behalf of the mutual funds it manages.

In a settled order against Fidelity, the SEC charged that the firm failed to seek “best execution” for its clients’ mutual funds securities transactions. The order found that Fidelity allowed the selection of brokers to execute those transactions to be influenced by lavish gifts as well as family and romantic relationships with brokers.

“The broker selection process on Fidelity’s equity trading desk was compromised when gifts and lavish entertainment swayed the flow of brokerage business,” said Walter Ricciardi, deputy director of the SEC’s Division of Enforcement. “This misconduct created a serious risk of investor harm and violated Fidelity’s duty of allegiance and loyalty to investors.”

The SEC order requires Fidelity to pay an US$8 million penalty, which takes into account Fidelity’s separate agreements with its mutual fund trustees and institutional and other clients to make additional payments. The SEC also censured Fidelity, ordered the firm to cease any further violations, and required Fidelity to hire an independent compliance consultant to conduct a comprehensive review of Fidelity’s current policies and procedures concerning equity trading operations, conflicts and gifts. Fidelity consented to the order without admitting or denying the findings.

Fidelity released a statement explaining that, “In the three years since this misconduct came to light, Fidelity has taken a number of remedial actions to back up its commitment that these types of activities shall not recur, including disciplining the individuals involved.” It added that none of the individuals cited by the SEC remain on its’ trading desk and most of them are no longer with the firm.

Additionally, the firm noted that it agreed with the independent trustees of the board of the Fidelity funds to make a one-time payment of US$42 million to the funds and an additional payment to other accounts it advises as a penalty for this misconduct.

“The behavior that led to these settlements is not at all indicative of the ethical standards of our company and the vast majority of our employees who have demonstrated on countless occasions their commitment to Fidelity’s mutual fund shareholders, customers, and clients,” the firm concluded.

Lynch also issued a statement, saying, “In asking the Fidelity equity trading desk for occasional help locating tickets, I never intended to do anything inappropriate, and I regret having made those requests. I want the public to know that I have never worked on the trading desk, and, since retiring from investment management at Fidelity over 17 years ago, I have not placed any trades on behalf of Fidelity with any brokerage firm.”