24 states, D.C. settle with Chase for $92 million

Bryan Cohen Jul. 7, 2011, 2:43pm


WASHINGTON (Legal Newsline) - A $92 million multistate settlement with JP Morgan Chase & Co., was announced on Thursday as part of an ongoing nationwide investigation of an alleged anticompetitive scheme.

Connecticut, Illinois, New York and Texas lead a working group of 24 states and the District of Columbia in the settlement, which alleged fraudulent conduct in the municipal bond derivatives industry. The company has agreed to pay $65.5 million in restitution to affect municipalities, state agencies, school districts and not-for-profit entities nationwide entering into municipal derivative contracts with JPMC between 2001 and 2005.

The company agreed to pay a $3.5 million civil penalty and $6 million in fees and investigation expenses to the settlement states. JPMC will also pay $17 million in restitution for other government and not-for-profit entities through separate agreements reached Thursday with the U.S. Securities and Exchange Commission and the Office of the Comptroller of the Currency.

JPMC also reached an agreement Thursday with the Internal Revenue Service, the U.S. Department of Justice's Antitrust Division and the Federal Reserve Board, which, when combined with the state, OCC and SEC settlements, totals $228 million. The state working group has obtained settlements totaling close to $250 million in the ongoing municipal bonds derivatives cases.

"This settlement evidences the continued success of our state task force's goal to prosecute anticompetitive conduct in the municipal bond derivatives marketplace," Connecticut Attorney General George Jepsen said. "Issuers, such as state and municipal government entities and not-for-profit entities, entrusted taxpayer money to JPMC and the company violated that trust by steering that money into rigged or tainted municipal derivatives contracts. This settlement, along with the coordinated federal settlements, will compensate government and not-for-profit entities for the losses arising from the wrongful conduct. (I have noted JPMC's) willingness to cooperate with our investigation and to rectify its wrongdoing by providing meaningful restitution to those harmed. JPMC's agreement to continue its cooperation - a critical component of this settlement - will provide the task force with further evidence against JPMC's co-conspirators."

Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are required, or to hedge interest-rate risk. Multiple national banks, insurance companies, certain brokers and swap advisors allegedly engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market. The state working group alleged that JPMC engaged in wrongful conduct in the form of bid-rigging, the submission of non-competitive courtesy bids and submission of fraudulent certifications of compliance to government agencies.

These alleged wrongful acts would enrich the financial taxpayer and/or the broker at the expense of the issuers and ultimately the taxpayers by depriving the issuer of a competitive, transparent marketplace. Because of this, state, city, local, and not-for-profit entities entered into municipal derivatives contracts on less advantageous terms they would have had otherwise.

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