Just in Time for Mother's Day

Fraudulent trading is bad enough but getting your mother involved is another thing altogether. And that's what federal securities regulators say that a former Fidelity equity trader did when he used confidential trading information for stock purchases in his mother's account.

The Securities and Exchange Commission has accused David K. Donovan Jr., 45, of Marblehead, Massachusetts, of defrauding the investment house and its advisory clients, including Fidelity Funds, by using illegal trades based on his access to trading information in Fidelity's internal order database.

There, according to the civil complaint filed in federal district court in Boston, Donovan learned that Fidelity's mutual funds and others were purchasing and planned to keep buying stock in Covad Communications, a San Jose, California, broadband voice and data provider.

Securities regulators said that Donovan accessed Fidelity's database on 107 occasions and used information he gleaned to buy Covad stock. When his request for authorization to trade Covad stock in his personal account was denied, he contacted his friend, David R. Hinkle, formerly of Capital Institutional Services.

Donovan, a former equity trader CFMR Co., a wholly owned subsidiary of Fidelity Management & Research, frequently directed trades, totaling millions of shares for Fidelity's advisory clients, to broker-dealer Hinkle for execution.

Between 2002 and 2003, Hinkle charged his firm for tens of thousands of dollars in travel and entertainment, including a dozen flights, some of which were by private jet, to the Super Bowl, Pebble Beach, and trips to international tennis events, including Wimbledon and the French Open. the complaint said.

Hinkle purchased Covad stock - later selling it weeks later in August 2003 for a $141,035 profit. Donovan bought stock in his (unnamed) mother's account. It had been inactive for the two previous years. Regulators say he sold the stock in September 2003 for a nearly $90,000 profit.

Donovan, who had worked for Fidelity starting in 1992, was asked to leave in March 2005 when the fraud surfaced. Hinkle, of Austin, Texas, has left his job.

The S.E.C. is asking for disgorgement with interest of the profits, and civil penalties - but no dollar figure was included. There was no immediate comment from the two defendants.

by Elizabeth Olson

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