From WSJ.com … ~~”Facing pressure from regulators, Fidelity Investments will buy back an estimated $300 million in auction-rate securities from its customers.
Anne Crowley, a spokeswoman for the Boston mutual-fund giant, said it notified regulators in New York and Massachusetts on Friday that it will repurchase at par value auction-rate securities that were purchased through the company before Feb. 13, which is about when the market for the securities froze amid failing auctions.
Auction-rate securities are debt instruments whose interest rates are reset periodically at daily, weekly or monthly auctions. Several auctions failed in February, driving up interest rates for auction-rate securities issuers, while leaving investors locked into long-term investments that had been promoted as safe and liquid.
Crowley said that Fidelity isn’t paying a penalty and isn’t subject to any finding of wrongdoing, but is taking this step “in light of the extraordinary circumstances.”
In a statement, New York Attorney General Andrew Cuomo said Fidelity will buy back about $300 million of the complex securities by the end of the year. Fidelity doesn’t have an estimate for how much of the securities it will repurchase, Crowley said.
“We’re making this extraordinary offer because of the unique situation in which a limited number of investors find themselves due to unprecedented events,” Crowley said.
Cuomo – who referred to the agreement with Fidelity as a settlement – said it marks the first such deal with a downstream broker that didn’t underwrite the securities or run the auctions.
“Obviously, Fidelity’s involvement with auction-rate securities is, in important respects, different from that of the underwriters and investment banks with whom we have previously settled,” Cuomo said in a statement. “Fidelity has stepped up and shown itself to be a market leader and a company that wants to do right by its customers who have been stuck holding these securities.”
The offer remains open for 90 days, and the company will buy back securities within 30 days from any date customers accept the offer. The buy-back offer doesn’t cover situations where auctions are clearing.
Fidelity has noted that only a very small number of its retail investors own auction-rate securities, and that the firm itself did not act as an issuer, underwriter or sponsor of the products. The company did not have any economic stake in the success of the market or a motive to sell the securities to customers, Crowley said.
A spokesman for Massachusetts Secretary of State William F. Galvin confirmed earlier Friday that the chief securities regulator for Massachusetts had received a letter from Fidelity with the terms of the repurchase offer. Galvin had asked Fidelity in August to buy back auction-rate securities, citing complaints from the company’s customers.
In recent weeks, regulators have reached settlements with Citigroup Inc. (C), UBS AG (UBS), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), Wachovia Corp. (WB), Merrill Lynch & Co. (MER), Deutsche Bank AG (DB) and Goldman Sachs Group Inc. (GS) to buy back more than $50 billion worth of the securities.
On Wednesday, Bank of America Corp. (BAC) reached an agreement with Massachusetts to buy back all illiquid auction-rate securities at par value from all retail customers nationwide, as well as small-business customers with up to $10 million in deposits and charitable-entity customers with up to $25 million in deposits. The agreement is expected to cover about $4.5 billion of the securities.
The Securities and Exchange Commission said Wednesday its enforcement division expects to announced the terms of a preliminary agreement with Bank of America soon.”~~
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