(Combines New York, Massachusetts deals)
By Joseph A. Giannone and Svea Herbst
NEW YORK, Sept 12 Fidelity Investments on
Friday reached agreements with authorities in New York and
Massachusetts to settle probes into its marketing of
New York Attorney General Andrew Cuomo and Massachusetts
securities regulator William Galvin separately announced the
settlements with Boston-based Fidelity, the giant mutual fund
and online brokerage firm.
Fidelity told the states it would buy back about $300
million of auction-rate securities from retail customers,
company spokeswoman Anne Crowley said. The company will
repurchase auction-rates bought before Feb 13, when the
auctions that had allowed investors to cash out collapsed.
As part of the deals, Fidelity will buy the securities by
the end of this year, but will pay no penalty.
Fidelity became the first retail broker "to settle and
agree to buy back auction-rate securities from its customers,"
New York officials declined to comment on Fidelity's links
with Goldman Sachs (GS.N), which Cuomo's office began
investigating last month.
Fidelity's pact followed similar agreements forged with
nine large underwriters in the past two months that will
restore more than $50 billion to investors and result in $522.5
million in fines.
Regulators have been pushing banks and brokers to
repurchase billions of dollars of securities, billed as safe,
cash-like instruments bought and sold in weekly or monthly
auctions. Big banks stopped supporting these auctions in late
January as the investor demand for the debt dried up, part of a
broader slump in financial markets.
Thousands of investors have been stuck holding the debt.
State officials have investigated whether banks sold these
securities even as they internally worried market turmoil was
making it harder to complete auctions.
Fidelity, along with a group of smaller brokers, said they
should not be responsible for buying back auction rates because
they were not underwriters and did not know the true condition
of the underlying markets.
"Fidelity is very different. We did not issue these
securities and we did not underwrite or auction them," a
Fidelity spokesman said.
Cuomo's office began investigating last month whether
Fidelity marketed Goldman-underwritten ARS because it received
other services from the investment bank, giving it an incentive
to sell these securities. Most of the auction-rate securities
sold by Fidelity were underwritten by Goldman.
Goldman reached an agreement with New York and other
regulators in August to buy back $1.5 billion in securities
sold to wealth management clients and agreed to pay a $22.5
million fine. Goldman was the No. 5 underwriter of auction-rate
municipal bonds since 2000, according to Thomson Reuters data.
Fidelity said it received no special financial incentive to
sell auction-rate securities. Roughly 600 Fidelity customers
who bought ARS before February 2008, when the markets
collapsed, still hold them.
(Editing by John Wallace and Gerald E. McCormick)