Massachusetts Secretary of State William Galvin is urging Fidelity Investments of Boston to buy back auction rate securities it sold to customers before the market froze up.
In a letter dated Aug. 19 and sent to Edward “Ned” Johnson III, chairman of the mutual fund giant, Mr. Galvin expressed “grave concern regarding complaints we have received from Fidelity customers who have purchased auction rate securities that were presented to them as safe, liquid principal-protected investments and who now find themselves unable to sell those securities.”
He noted that other broker-dealers have agreed to repurchase the securities at par.
“It is my hope that Fidelity will follow the industry trend and promptly repurchase these securities that it has sold to customers,” Mr. Galvin wrote.
“Fidelity is neither the issuer, underwriter nor sponsor of these securities,” responded Fidelity spokesman Vin Loporchio.
“Fidelity does not proactively market auction rate securities or maintain an inventory of these securities. We don’t run or host auctions. We believe the underwriters should stand behind these securities,” he said.
The firm began posting information on its website in September 2006 when it began selling the auction rate securities online, Mr. Loporchio said.
“We state that one of the risks of purchasing these bonds is failed auctions, which can lead to lack of liquidity.”
Auction-rate securities are debt instruments.
The market, which is estimated to have $360 billion in assets, has been illiquid since February when trading ceased. As a result, investors have been unable to sell the securities.
Fidelity sold the securities to a small number of retail clients, Mr. Loporchio said. “Customers can contact us directly. We have a process in place to review customer concerns.”
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