Capital Markets

Mass. Pushes for Fidelity ARS Buyback

For Secretary of State Galvin, it's the latest target in his efforts to stand up for investors. The investment company says it "will respond."
Kate PlourdAugust 20, 2008

In a letter to Fidelity Investments CEO Edward C. Johnson III Tuesday, Massachusetts Secretary of State William Galvin urged the huge broker-dealer to buy back any auction-rate securities it sold to customers.

Fidelity spokesman Vincent Loporchio told that the investment firm learned about the letter yesterday through news media sources, and “will certainly review the letter and respond to the secretary directly.”

According to a copy of a letter provided to, Galvin told Johnson that he has received complaints from Fidelity customers, and needed to express his “grave concern” that auction-rate securities were presented by Fidelity as safe, liquid principal-protected investments.

“It is my hope that Fidelity will follow the industry trend and promptly repurchase these securities that it has sold to its customers,” Galvin wrote.

Loporchio told that Fidelity didn’t issue, underwrite, or sponsor the auction-rate securities that its customers bought, and said that it “believes the underwriters should stand behind their securities.”

Fidelity also contends that it started informing customers of the risks of purchasing ARS on its Web site in September 2006, when it made ARS available. “As market conditions have evolved over the past few months, we have expanded the information we provide customers,” says Loporchio.

Five other firms — Wachovia, JPMorgan, Morgan Stanley, UBS, and Citigroup — have agreed to buy back auction-rate securities from retail customers that are unable can’t sell the securities they thought were equivalent to cash. And there is pressure on others to do the same.

The request of Fidelity isn’t the first involvement the chief securities regulator of Massachusetts has had in the auction-rate securities debacle. In late June, Galvin charged UBS with securities fraud in its ARS dealings, and he charged Merrill Lynch with the same a month later.