Feds, states settle with Bank of America

Keith Loria Dec. 7, 2010, 3:37pm

WASHINGTON (Legal Newsline) - Bank of America has agreed to pay a total of $137.3 million in restitution to both state and federal agencies for its alleged participation in bid rigging of the municipal bond derivatives market.

A total of 20 states were involved in the settlement with Bank of America, which allegedly orchestrated a nationwide scheme to rig bids and engage in other anticompetitive practices. These actions led to the bank defrauding state agencies, municipalities, school districts and nonprofits by having them purchase municipal bond derivatives, it is alleged.

The $137 million settlement resulted from a broad and ongoing criminal and civil inquiry by the U.S. Department of Justice and the states' probe into the bank.

Bank of America, other major financial institutions and certain brokers allegedly conspired to prevent competitive bidding in the selling of so-called municipal derivative investments.

It is common for municipalities, schools and other organizations to issue municipal bonds to fund projects, such as financing infrastructure repairs or building schools. When the bonds are issued, the money is normally placed into accounts for use when the local entity incurs expenses for the project.

Many times, the the municipality or other agency that issued the bonds looks for ways to invest the money, since the money isn't needed immediately. Such investment accounts and risk management products, called municipal bond derivatives, are provided by large financial institutions.

From 1998 through 2003, Bank of America allegedly conspired with financial institutions and brokers to orchestrate bids for those transactions, circumventing the competitive bidding process. They allegedly did this by talking directly to one another instead of through brokers, as required by law.

Allegedly, brokers also frequently offered Bank of America and other financial entities the opportunity to review the other bids so that Bank of America or the other financial institutions could submit the winning bid.

Bank of America is the only entity in the alleged scheme to volunteer its wrongdoing to the U.S. Department of Justice. Under the DOJ's Corporate Leniency Program, Bank of America was granted conditional leniency based on its acknowledgement of wrongdoing, its significant cooperation and its issuing of restitution.

"The Department of Justice's Antitrust Corporate Leniency Program is essential to our criminal enforcement of the antitrust laws," Christine Varney, the assistant attorney general in charge of the Department of Justice's Antitrust Division, said.

"Bank of America's disclosure of wrongdoing and cooperation has led to an aggressive, ongoing investigation by the Department of Justice into anticompetitive activity in the municipal bond derivatives industry."

Bank of America, as a condition of its admission into the Antitrust Corporate Leniency Program, was required to be the first entity to self-report anticompetitive conduct, acknowledge its wrongdoing, provide ongoing cooperation and make full restitution to the victims of the conspiracy.

The 20 states participating in the Bank of America settlement are Alabama, California, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.

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