Jerry Brown (D)

SACRAMENTO, Calif. (Legal News Line) -- The California Attorney General's Office has launched an investigation into charges that Wall Street officials rigged bidding on financial contracts made to local governments, which in turn inflated the costs charged to taxpayers.

Other states have launched similar investigations, including Connecticut and Florida, along with a number of municipalities across the country, Bloomberg News reported Friday.

Christine Gasparac, a spokeswoman for California Attorney Jerry Brown, confirmed California's investigation, but declined to comment, Bloomberg reported. Similarly, Connecticut and Florida confirmed they have had ongoing investigations.

The investigations are focused on an estimated $400 billion in municipal bonds issued annually to local and state governments and school boards. According to published reports, Wall Street banks guard against swings in lending rates and borrowing costs by making interest-rate swaps.

"They're sitting there saying this is a situation where we may have been taken," Christopher Taylor, former executive director of the Municipal Securities Rulemaking Board, was quoted by Bloomberg as saying.

Specifically, the investigators are focused on whether the bidding for guaranteed investment contracts was rigged. Internal Revenue Service regulations require that such agreements only be made after government agencies have three competing bids.

The investigation seeks to find proof that the brokers participated in collusion by sharing information and illegal profits from the ensuing contracts.

One lawyer pursuing a class action against more than 30 banks called it a "trillion dollar industry" that dates back to the 1980s.

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