Galvin asks Fidelity to buy back auction-rate securities

Massachusetts Secretary of State William F. Galvin today wrote to Fidelity Investments, urging the Boston firm to buy back any auction-rate securities that it sold to its customers.

The letter, addressed to chief executive Edward C. Johnson 3d, cited Galvin’s ‘‘grave concern’’ about the plight of investors who have been unable to sell auction-rate securities since February.

A number of Fidelity’s customers have complained to the state Securities Division, which is part of a national regulatory probe of the $330 billion auction-rate market.

Galvin wrote, ‘‘It is my hope that Fidelity will follow the industry trend and promptly repurchase these securities.’’

Five major Wall Street firms, including UBS Financial Services Inc. and Citigroup, have agreed to $42 billion in settlements with state and federal regulators and will buy back auction-rate securities they sold to clients without disclosing the risks.

Auction-rate securities are debt issued by nonprofits, municipalities, and certain investment funds. They were sold to ordinary investors as alternatives to money markets — as safe, cash-like vehicles. But the auction-rate market shut down Feb. 13 as demand for the bonds dropped off and the brokerage firms stopped supporting trading. Investors have continued to receive interest payments, in most cases, but they have been unable to sell the investments.

Galvin’s demand that Fidelity buy back outstanding auction-rate securities marks a shift from Monday. He had previously suggested that Fidelity might, on behalf of its customers, have to go to the brokerage firms that have multibillion-dollar settlements.

Unlike those firms, Fidelity is a discount brokerage and does not provide investment advice; it mainly puts in buy and sell orders on behalf of customers.

Fidelity had no immediate comment.
(By Beth Healy, Globe staff)