The U.S. Securities and Exchange Commission and the New York Stock Exchange Tuesday announced the settlement of enforcement actions against Fidelity Brokerage Services LLC, on allegations that numerous Fidelity Brokerage branch offices altered or destroyed records.

Under the settlement, Fidelity Brokerage will pay a total of US$2 million — a US$1 million civil penalty imposed by the SEC and a US$1 million fine imposed by the NYSE. The NYSE hearing panel also censured the firm. In addition to these coordinated enforcement actions, the NYSE separately took disciplinary actions in related cases against seven individuals.

As part of its settlement, Fidelity Brokerage neither admitted nor denied both the NYSE’s, and the SEC’s, findings. In determining to accept Fidelity Brokerage’s settlement offer, the SEC considered remedial acts promptly undertaken and cooperation afforded its staff.

In a joint investigation, the SEC and the NYSE found that between January 2001 and July 2002, Fidelity Brokerage violated the record-keeping requirements of the federal securities laws because employees in at least 21 of its 88 branch offices altered or destroyed the firm’s books and records. The violations related to Fidelity Brokerage’s annual internal inspections, which were designed to determine whether branch offices were complying with the firm’s policies and procedures, NYSE rules, and the federal securities laws. The firm’s managers pressured branch office employees to obtain perfect inspections and gave advance notice of when the inspections would occur, the SEC says.

These actions were not discrete or isolated. At least 62 employees engaged in some form of this conduct in at least 21 branch offices, primarily in the firm’s Western region. The conduct caused Fidelity Brokerage to maintain inaccurate or incomplete books and records in violation of the federal securities laws and NYSE rules, the SEC found.

“This widespread conduct revealed a serious failure in Fidelity Brokerage’s compliance culture and in its supervision of its branch office employees,” said Randall Lee, director of the SEC’s Pacific Regional Office. “Our action emphasizes the critical need for brokerage firms to adopt effective compliance systems to ensure that they accurately maintain and preserve their books and records.”

“Destroying and ‘cleaning up’ files in advance of internal inspections or NYSE examinations corrupts the integrity of the regulatory process and will not be tolerated,” said Susan Merrill, chief of enforcement at the NYSE.