BARNEY LIED: The Fidelity Case
September 13, 2010 • 9:31AM

Barney Frank said during his Sept. 7 debate with Rachel Brown, "I've done a great deal with my chairmanship, frankly, to try and help these institutions.... We have some very responsible financial institutions in Massachusetts—Fidelity ... [and] others, that were not part of the speculation. They weren't .... doing these kinds of far-out things. What I did .... was to say, we're going to prevent excessive speculation [and] abuse of financial razzle-dazzle, but we don't want to interfere with the legitimate business methods of people like Fidelity, who are an important source of people for investing their funds...."

Barney lied.

Fidelity Investments is the family concern of Boston Brahmin Edward Johnson and his heirs, descendants of the Perkins family, who were notorious for their part in the China Opium trade under protection of the British navy. Fidelity is run as a secretive, Venetian-style "fondo," managing over a trillion dollars of investments,

Contrary to Barney Frank's assertions, Fidelity is a world leader in the most aggressive, "far-out" speculations.

Here is Fidelity's own description of one of its offered investments.

Fund Title: 'Asian Aggressive Fund'

"The fund aims to provide long-term capital growth from a portfolio primarily comprised of securities of companies having their head office or exercising a predominant part of their activity in countries of the Asia Pacific (excluding Japan) region.... The fund may make extensive use of financial derivative instruments and use more complex derivative instruments or strategies. Financial derivative instruments will be used to achieve the investment objective of the fund. These instruments include but are not limited to futures, options, forwards, swaps, contracts for difference and currency derivatives. The underlying exposures of derivatives include instruments such as (but not limited to) equities and cash."

The LONDON SUNDAY TIMES (article January 25, 2009, "Beware supercharged income fund bandwagon") warned investors to be wary of Fidelity as a dangerously speculative operation.

"Whatever happened to the old adage that if something seems too good to be true, it probably is?

"Enhanced-income funds arent able to offer such juicy yields without a little financial alchemy. They all use covered call options, a type of derivative, to produce a higher income. The funds hold shares that pay above-average dividends, just like traditional equity income funds, but they also sell options on those shares.

"....Fidelity argues that call options are at the conservative end of the derivatives spectrum. However, there's no doubt that the thirst for ever-better yields in a low-rate environment is what got us into the credit crunch, as Lord Turner, chairman of the Financial Services Authority, pointed out last week."

On March 5, 2008, the SECURITIES AND EXCHANGE COMMISSION (SEC) charged Fidelity with receiving $1.6 million in bribes from brokers who wanted to cash in on the massive trading business Fidelity generates for the funds it operates. Fidelity personnel took the bribes rather than seeking the best deal for their investors.

The SEC announced ("SEC Charges Fidelity, Executives and Employees for Improperly Accepting Lavish Gifts Paid For by Brokers," SEC Release 2008-32, March 5, 2008): "the SEC charged that the firm failed to seek 'best execution' the most favorable terms reasonably available 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.... This misconduct created a serious risk of investor harm and violated Fidelity's duty of allegiance and loyalty to investors.

"The SEC ordered Fidelity to pay an $8 million penalty, in addition to other payments already agreed to with its mutual fund trustees and institutional and other clients.

"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."

Why Did Barney Protect Fidelity, and Lie About It?

Fidelity Investments held a special fundraising event for Barney Frank, chairman of the House Financial Services Committee overseeing financial institutions, at Fidelity's Boston headquarters office, in March, 2009.

The Boston Herald reported the Fidelity event April 23, 2009, saying that Barney Frank was "expected to play a major role in drafting new financial regulations."

Fidelity executives contributed about $28,000 to Barney Frank in connection with the fundraiser. This constituted about one-third of all contributions to Frank's campaign in the first quarter of 2009.

The Herald reported Jim Lowell, editor of the independent Fidelity Investor newsletter, as saying, "he's never heard of Fidelity backing Frank or other lawmakers to such an extent."

"Still, Lowell said he's not surprised by Fidelity's fund-raiser for Frank, considering that [Fidelity boss] Ned Johnson earlier this year vowed in an annual report to strengthen Fidelity's government and public-affairs unit amid increasing calls for more financial regulations."

OpenSecrets.org reported that Fidelity political action committees or employees of Fidelity (parent company "FMR Corp.") had previously contributed $10,000 for Barney's 2008 campaign, and $13,750 for his 2006 campaign.