Fidelity Investments Troubles over Auction-Rate Securities

[dollardaze]

According to a recent article I read, Fidelity Investments, a brokerage firm which is based out of Boston, Massachusetts, could be facing some legal trouble caused by some of their employees that told customers about auction-rate securities, saying that these securities are safe and cash-like.

One customer of Fidelity Investments, Bert Davidson, said that he didn't know what an auction-rate security was until informed by a Fidelity representative about them. The representative said that the securities were safe and cash-like, which prompted Davidson to invest around $900,000 in them, only to now be unable to access his money. These securities have been frozen since February, nationwide.

Eight major Wall Street firms have been pressed to buy back more than $50 billion of these securities from customers, by State and Federal regulators. The problem for Davidson is that this does not help him, since these buy backs are only for those investors that bought the securities from Wall Street brokerages which were also underwritten by those firms.

Fidelity claims that the firm did not proactively sell the auction-rate securities to its clients and therefore is not responsible to buy them back.
Fidelity's main function is to execute orders which are placed by customers, not to advise them for a fee as a full service Wall Street broker does, and says that Wall Street should reimburse these customers that cannot access their money.

Still, Fidelity and other similar firms are being investigated by regulators, to determine whether their customers were misled by these companies about the risks involved in buying auction-rate securities.

Several angry customers of Fidelity are angry over the fact that they cannot access their cash, and some potential lawsuits could be pending over this matter.

[pennypinch]

If it is true that some employees did mislead their customers, then I hope lawsuits are brought upon them. I hear stories like this everyday where someone is misleading someone else and basically tricking them into doing something that they wouldn't really want to do if they knew the truth. It is happening all of the time and it has to stop.