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Will an Ex-Fidelity Advisor’s Reg BI Suit Catch the SEC’s Eye?

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A financial advisor’s whistleblower lawsuit alleging Fidelity Investments prioritized its own profits over clients’ best interests could potentially prompt the Securities and Exchange Commission to investigate.

In fact, legal experts suggest, the lawsuit could potentially lead to a probe and civil or criminal charges that could have implications for the industry more broadly.

“Fidelity is going to have a fight on its hands here. And there have been some whistleblower cases in the last 20 years that have been whoppers. Companies have taken big losses,” Dan Meyer, partner at Tully Rinckey in Washington, told me in an interview.

“There’s few and far between, but they’re enough to remind everybody that … there’s a potential that the company could take a big hit,” he said.

Reg BI Violations Alleged

In the lawsuit, filed in early May in U.S. District Court in Dallas, Michael Maeker, who spent 24 years with Fidelity, alleges the financial giant fired him in retaliation for reporting company practices he says put the firm’s profits over customers’ finances.

Fidelity repeatedly breached its fiduciary obligation by improperly pressuring Maeker and other advisors to push their clients to move assets from low-fee investments such as index funds to higher-fee, “Tier 3” managed money products, including separately managed accounts, he contends.

Maeker alleges he was pressured to push clients into unsuitable or ill-advised investments.

Fidelity’s conduct over five years violated the SEC’s Regulation Best Interest, which governs broker-dealer conduct, and other laws related to fraud on shareholders, according to the complaint, which also contends the company violated the Sarbanes-Oxley Act’s anti-retaliation and whistleblower protections.

The Reg BI violations at Fidelity came to an abrupt halt last year after Maeker’s whistleblowing exposed them and after he filed a Sarbanes-Oxley complaint, he alleges.

Fidelity has said it “denies all the allegations made by this former employee, including about his termination, and will defend itself vigorously.” On May 29, the company received a 30-day extension, to July 5, to file its legal answer to the lawsuit.

Potential Industry Ripple Effects

Legal experts see risks for Fidelity in the case itself and in the potential for regulators to investigate the firm’s alleged conduct.

If material comes out at trial showing Fidelity violated SEC rules, the case also could prompt an investigation, Meyer said.

The SEC can pursue only civil charges against firms and individuals but may refer potential criminal cases to law enforcement agencies and conduct probes in tandem with them.

Frank Xu, senior litigation counsel with Sanford Heisler Sharp in Washington, said he was curious to see how Fidelity would deal with the allegations that they violated Reg BI. He too cited the potential for action beyond the lawsuit.

“Regulators may look at this complaint and begin their own investigation into Fidelity, and a much larger fine can come that way in comparison to this suit,” Xu told me via email. He noted the complaint cites declarations, emails and audio recordings as evidence the company pressured advisors to push clients into Tier 3 investments.

The suit also cites “hero sheets” that Fidelity allegedly distributed comparing different branch managers’ Tier 3 numbers.

“There are significant risks for the company for taking a case like this to trial,” Xu said, citing the potential for having facts emerge that would demonstrate the company has attempted to silence whistleblowers to protect its own bottom line.

Such a case “attracts a lot of unwanted attention for the company” beyond just the alleged retaliation “because now they have to deal with the underlying conduct that the whistleblower complained about, as well,” Xu said. “Regulators may now look into Fidelity’s conduct surrounding Reg BI, if they haven’t already started such a process.”

f that happens, the case could have implications for other financial services companies, Meyer suggested.

Private citizen whistleblowers extend the reach of federal agencies that lack adequate staff to regulate industry, he noted. If the SEC responds to Maeker’s case by initiating its own investigation, that could indicate that it’s going in a certain direction with its regular investigatory agenda, Meyer said.

“Does that give an indication of where the Biden administration is going with its securities policy? And that becomes important if this goes into a second Biden administration. If it’s a second Trump administration, I wouldn’t think the Securities Exchange Commission would investigate,” he added.

Reason for Termination

A key question in the case will be whether Maeker can show he was fired for his whistleblowing and not for other reasons, as Fidelity contends.

Under the Sarbanes-Oxley Act, or SOX, the employee must prove their internal complaint was a contributing factor in their termination, Xu said. Companies can try to show there was a “clear and obvious reason” other than whistleblowing why they terminated an employee, he said.

Indeed, Fidelity reported to the Financial Industry Regulatory Authority, in 2022 that it fired Maeker over allegations he misrepresented interactions with clients and improperly used planning tools, inflating his performance metrics.

Maeker responded that Fidelity’s allegations were false, misleading “and intended to cause harm to my career,” and that the company provided nothing in writing to corroborate them.

“My manager and Fidelity took action against me after I made multiple written reports of Fidelity’s and my manager’s unethical business practices and Reg BI violations,” Maeker told FINRA.

“Fidelity only took action against me after I did not give into pressure by my manager to put clients into investments that paid higher revenue when those investments were not in the clients’ best interests,” he added.

Maeker makes similar points in the lawsuit, noting he had been rated as successful or exceptional in performance reviews and received no warning memo or e-mail about the alleged policy violations. He also contends another advisor remains employed at Fidelity despite having forged a client’s signature to expedite an annuity application.

“The fact is that Fidelity did not raise any policy violations or performance issues with Maeker until after his whistleblowing report,” the lawsuit asserts.

The case will be decided on whether Maeker’s alleged misconduct that Fidelity cites as cause for his dismissal warranted the firing, according to Tully Rinckey’s Meyer.

Fidelity noted to ThinkAdvisor earlier in May that an Occupational Safety and Health Administration investigator had reviewed and dismissed a complaint by Maeker, finding the advisor “would have been removed from his role due to his misconduct regardless of his purported whistleblowing activity,” and that Fidelity therefore did not retaliate against him.

Maeker’s lawyer, Rogge Dunn, however, said the lawsuit is proceeding  “de novo,” or afresh and separate from past proceedings, and that the OSHA finding was an initial decision by the investigator only, not a ruling on the merits.

Meyer predicted Fidelity will quickly move to a critique of Maeker in the workplace, “and he will have to fight through counsel to make this about Fidelity.”

Maeker recently joined Texas Capital in Fort Worth as executive director, senior investment advisor for Private Wealth Advisors.

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