ARS probe now includes Fidelity, Schwab

New York Attorney General Andrew Cuomo’s nationwide probe into the financial services industry’s selling of auction rate securities has widened to include Fidelity Investments and The Charles Schwab Corp., according to published reports.
His investigation into the sale of such securities has led to nearly $35 billion in liquidity returned to investors by Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley, all of New York, Zurich, Switzerland-based UBS AG and St. Louis-based Wachovia Securities LLC.
A Fidelity spokesman said that the Boston-based company isn’t an issuer or sponsor of auction rate securities and that its only connection to the investments is receiving buy and sell orders from its customers and then providing them the underwriter for purchasing the products.
“We are not in the same situation as the firms who are offering to buy securities they issued or underwrote back from customers to whom they sold them,” the Fidelity spokesman said.
“Many securities firms have been asked by regulators to provide information regarding these securities. We are one of those firms and are cooperating with these requests,” a spokesman for Schwab said in a statement.
“It’s important to know that unlike other firms that have been in the news related to auction rate securities, we didn’t underwrite these products, didn’t market them to our clients, but simply acted as an agent as an accommodation when clients asked for them. A significant portion were simply transferred in from other firms where they were originally purchased.”
The press office for Mr. Cuomo didn’t immediately return calls seeking comment.
Mr. Cuomo said Friday that he will also investigate New York-based Merrill Lynch & Co. Inc.’s role in the marketing and selling of auction rate securities, which are debt instruments whose interest rates change during monthly auctions (Investment News, Aug. 15).