Fidelity Investments Agrees To Settlement In Auction-Rate Probes

Fidelity Investments has become the first retail institution to reach a settlement in the auction-rate securities probe spearheaded by New York Attorney General Andrew Cuomo. As part of an agreement with Massachusetts and New York regulators, the mutual fund company will buy back about $300 million worth of the securities from its customers, including individuals, businesses and charities.

Initially, Fidelity balked at buying back the auction-rate securities from clients, contending it, like investors, also had been deceived about the condition of the auction-rate securities market. The Boston-based brokerage and mutual fund giant said it should therefore be exempt from buying back the securities because it did not underwrite or issue the bonds.

Assigning blame in the auction-rate mess has gained momentum in recent weeks as several of Wall Street’s biggest investment banks - including UBS, Citigroup, JP Morgan Chase and others - agreed to buy back billions of dollars of auction rate securities from their customers. To date, nine investment banks have committed to buy back more than $50 billion worth of the securities and pay $520 million in fines and penalties.

Auction-rate securities are municipal bonds, corporate bonds, or preferred stocks whose interest rates reset through auctions held every seven, 14, 28, or 35 days. In theory, investors can liquidate their auction holdings at face value during these auctions. In February, however, trading came to an abrupt halt when investment banks decided to no longer support the auction market.

Under the terms of its agreement, Fidelity will buy back customers’ auction-rate securities within 30 days of their request. A civil penalty will not be imposed on the company.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

This entry was posted on Saturday, September 13th, 2008 at 2:37 pmand is filed under Auction Rate Securities, Fidelity. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.