Wednesday, Dec. 8, 2010 | 2:05 a.m.
Government and non-profit entities in Nevada are expected to receive a combined $112,500 from Bank of America as part of a multi-state settlement with the financial institution for its involvement in an unlawful nationwide scheme involving municipal bond derivatives, the Nevada Attorney General’s Office said.
The scheme involved bid-rigging and other anti-competitive conduct that defrauded state and local governments and not-for-profit entities in their purchase of the derivatives.
The $67 million settlement is part of a larger $137 million settlement the bank entered with the Securities and Exchange Commission, Office of the Comptroller of the Currency, Internal Revenue Service and Federal Reserve.
“Bank of America engaged in bid rigging and other fraudulent conduct with co-conspirators to create the illusion of a free market in financial transactions it entered with municipal bond issuers,” Nevada Attorney General Catherine Cortez Masto said. “This conduct will not be tolerated, particularly given the significant financial difficulties many government entities currently face. I am pleased to work with other states and the federal government in securing this settlement and as our investigation proceeds with Bank of America’s co-conspirators.”
The settlements were the result of a broad and ongoing criminal and civil investigation that has involved the Department of Justice’s Antitrust Division and other federal agencies.
The investigation focuses on individuals at Bank of America, other major financial institutions and certain brokers in connection with the marketing and sale of municipal derivative investments.
These typically are investment contracts that government issuers and not-for-profit entities use to reinvest the proceeds of tax-exempt bond offerings until the funds are needed or hedge against interest rate risk. The transactions are often awarded after a competitive bidding process or negotiated directly between the financial institution and the issuer.
Bank of America was the first and only entity in the scheme that voluntarily self-reported wrongdoing to the Justice Department. Bank of America was granted conditional leniency based on its acknowledgement of wrongdoing, significant cooperation and its making restitution. The Justice Department has brought criminal actions against seven individuals and one company and has obtained guilty pleas against eight others involved in the schemes.
As alleged in the multi-state settlement agreement, during the period 1998 through 2003, Bank of America and other financial institutions and brokers allegedly rigged bids, received and provided “last looks” on bids and submitted non-competitive “courtesy” bids on these investments. The alleged schemes enriched financial institutions or brokers at the expense of state agencies, towns, cities, school districts and nonprofits.
As a result of this misconduct, governmental and nonprofit entities entered into contracts at suppressed rates of return on investments or paid higher rates on interest-rate hedging instruments than they would have in a competitive marketplace.
Other states included in the settlement are Alabama, California, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.
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