According to the newspaper, a source told DealBook this is the first such settlement with one of the “downstream” sellers of the assets.
The Times said regional brokers like Fidelity, Oppenheimer, and Raymond James argue that they were merely sellers of these securities and had nothing to do with banks’ refusals to hold the auctions to reset their interest rates. A trade group, the Regional Bond Dealers Association, sent a letter to regulators last month demanding that the banks buy back securities for all the auctions they held, and not just those sold to their own clients.
Most of the large originators of auction-rate securities, including banks like Citigroup, UBS (See UBS Auction-Rate Securities Bill Grows ), and Morgan Stanley (See New UBS Lawsuit Sprouts ) have already reached settlements with state regulators as well as with the Securities and Exchange Commission (See Wachovia Settles Auction Rate Securities Charges ).
Banks hold the auctions at which interest rates on these securities are reset; however, after the onset of the credit crunch last summer, they began withholding the auctions, leaving investors with securities they could not resell.