New York probes Fidelity, Goldman Sachs connection

New York Attorney General Andrew M. Cuomo's office confirmed today that it is looking into whether Fidelity Investments sold auction-rate securities to its clients at the urging of Wall Street powerhouse Goldman, Sachs & Co.

Goldman Sachs was the fifth-largest issuer of the investments according to Thomson Reuters. But unlike many firms in the auction-rate business, Goldman does not have a traditional brokerage force selling its products. It sold auction-rate securities to wealthy clients through Goldman's high-net-worth advisers and also offered them through outside brokers, including Fidelity.

Fidelity said it did no special favors for Goldman Sachs in selling its auction-rate securities.

"There was no financial incentive for the company to push auction-rate securities over other investments,'' Fidelity spokeswoman Anne Crowley said.

The Boston-based discount brokerage said 600 customers bought auction-rate securities before Feb. 1 -- less than two weeks before the market shut down -- and who continue to own them today. The largest regulatory settlement in the auction-rate probe to date was with UBS Financial Services Inc., which agreed to buy back nearly $19 billion in the investments from 40,000 customers.

Goldman Sachs last week agreed to buy back $1 billion in auction-rate securities from its clients and to pay a $22.5 million fine. The firm neither admitted nor denied wrongdoing as part of the settlement. It declined to comment today.

Cuomo's inquiry into a possible Fidelity-Goldman relationship was first reported by the Wall Street Journal. The inquiry is in its initial stages, a person briefed on the probe told the Globe, and the office has yet to find any evidence of an inappropriate relationship.

Massachusetts Secretary of State William F. Galvin has written a letter to Fidelity, urging the firm to buy back the frozen securities from its clients. Galvin, who oversees the Massachusetts Securities Division, said Fidelity may meet with the division as early as next week to discuss its auction-rate sales activities.
(By Beth Healy, Globe staff)