New York probes Fidelity, Goldman ties: sources

NEW YORK (Reuters) - New York Attorney General Andrew Cuomo's office is probing the relationship between Fidelity Investments and Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) in connection with the broker's sales of auction-rate securities, people familiar with the investigation said on Wednesday.

State investigators previously disclosed their interest in looking into how Fidelity and other brokerages sold auction rate debt -- investments long marketed as cash alternatives that have been nearly impossible to sell for most of this year.

More recently, Cuomo's staff began taking a close look at whether Fidelity marketed Goldman-underwritten ARS because it received other services from the world's largest investment bank and therefore had an incentive to sell auction-rates to clients, the sources said.

The state began focusing on the relationship after finding that most of the ARS sold by Fidelity were underwritten by Goldman, the sources said.

Goldman was the No. 5 underwriter of auction-rate municipal bonds since 2000, according to Thomson Reuters data.

Goldman and Cuomo's office declined to comment.

Fidelity spokeswoman Anne Crowley said Fidelity received no special financial incentive to sell auction rate securities. Roughly 600 Fidelity customers who bought ARS before February 2008, when the markets collapsed, still hold them.

The bulk of Fidelity's discount brokerage clients are self- directed, although it has a small wealth management business for richer households.  Continued...

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