Fidelity Brokerage Services (FBS) failed to properly review Massachusetts retail investors who requested approval to trade options and margin, according to a new complaint filed by the office of Commonwealth Secretary William Galvin.

The b/da’s lax approach led to instances where applicants who exaggerated their experience and job information were vetted even though FBS was aware of the information disputing those claims. In a statement about the complaint, Galvin said firms cannot “automatically approve” options trading requests without due diligence.

“With the recent increase in interest in online options trading among many young retail investors, as well as the rise of online and mobile applications, brokers/traders need to ensure that they maintain always the same level of care and attention and making sure those investors are eligible,” he said.

Specifically, the administrative complaint alleged that FBS “engaged in grossly unethical and dishonest conduct” by failing to properly review applications. The complaint said Fidelity had failed in several areas, including failing to review customer information on file, training its Central Review Team (CRT) staff and ensuring its own policies adhered to the standards of Massachusetts securities law.

According to the complaint, FBS had a provision requiring reviewers to be aware that a client could reapply for approval by increasing their financial or work experience information, so claims made in new applications must be verified by compared to all previous ones filed by the same applicant for inconsistencies. . But FBS allegedly did not enforce the provision and instead took an “assembly line approach” to reviewing requests for approval, which allows customers to easily thwart them by submitting multiple requests.

CRT staff missed numerous inconsistencies in applications between mid-March 2020 and June 2021, according to Galvin. In some cases, applicants claimed they had gained years of experience in just a few days or that their annual earnings had increased in less than a day after a previous application was denied. In one case, a candidate claimed he was promoted from “Scientist” to “CEO” less than a day after his previous application was rejected, while another candidate said his profession was “Employment”. .

“Despite having access to all prior options and margin requests a retail broker client has ever submitted, CRT members never look beyond the single request before them,” the complaint states.

Between March 2020 and December last year, Fidelity approved more than 27,300 options applications. In one case, a single determined client submitted 13 requests in one month.

The complaint argued that by acting as it did, FBS risked exposing “inexperienced retail brokerage clients” to dangerous options and margin trading. After the Securities Division began its investigation, FBS reportedly instituted a new policy prohibiting an applicant from submitting an electronic application if they had already submitted two applications in the previous 60 days.

“However, this does not necessarily preclude consecutive submissions of electronic options requests,” the complaint reads. “FBS still does not limit how often a retail brokerage account can submit paper option requests, nor how often a retail brokerage client can submit margin requests of either type.”

According to a Fidelity spokesperson, the b/d cooperated “fully” with the Securities Division.

“FBS has a long-standing commitment to providing excellent customer service, operating with integrity, and adhering to industry standards and regulations,” he said. “We disagree with the characterizations of FBS contained in the complaint, believe we have effective due diligence processes, and look forward to addressing and resolving this matter through the administrative process.”

The complaint was announced a day after Galvin detailed a scan his office is questioning some brokers about their disclosures to budget clients with investments in certain target date mutual funds. Galvin seeking re-election as Secretary of State, a position he has held since 1994.