MUTUAL FUND FIRM VOLUNTARILY AGREES TO REPURCHASE AUCTION RATE SECURITIES
A large mutual fund firm has undertaken to spend $300 Million to voluntarily repurchase auction rate securities purchased by customers of its retail brokerage affiliate. In a letter to Secretary Galvin of Massachusetts, the firm noted that, unlike others who incurred regulatory action in connection with ARS securities sales, it was not an issuer, underwriter, or sponsor. In fact, it noted that it made less money than on its competing money market funds. Nevertheless, it decided to act “as a good corporate citizen” even though “no regulator has found any wrongdoing.”
OUR TAKE: The firm’s action sets a precedent for all other downstream retail brokers. Expect regulators to make similar requests of other non-sponsor ARS brokers to make their customers whole.