Federal Government, Massachusetts AG Martha Coakley and 19 States Reach $137 Million Settlements with Bank of America for Bid-Rigging Municipal Investment Contracts
Massachusetts state agencies, non-profits and others eligible for more than $2.5 million in restitution from Bank of America in connection with nationwide scheme
"We are pleased that Bank of America came forward to take responsibility for its conduct and to pay restitution to those harmed by this fraud," said Attorney General Martha Coakley. "Our office will continue to pursue others who were involved in the scheme to defraud cities, towns, schools and non-profits in Massachusetts. Today's settlement and our ongoing investigations are particularly important given the financial constraints that many state entities, municipalities and non-profits are facing in these tough economic times."
In addition to the $67 million paid as part of the multistate settlement, Bank of America will pay an additional $70 million as part of a broad resolution with federal law enforcement agencies acting as President Obama's interagency Financial Fraud Enforcement Task Force. The federal agencies involved include the U.S. Department of Justice, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Internal Revenue Service and the Federal Reserve. The states worked with the federal agencies in an effort to coordinate these settlements. The total value of all federal and state settlements with Bank of America is approximately $137 million.
Today's settlement involves an investigation of widespread price-fixing and bid-rigging conspiracies among providers and brokers of municipal derivatives financial instruments. The settlement agreement alleges that Bank of America and its marketers profited by rigging bids and receiving "last looks" for Municipal Bond Derivatives, a practice which is prohibited under U.S. Treasury regulations. As a result of their secret arrangements, Bank of America's marketers were able to win more business for Bank of America in the municipal derivatives industry and to obtain that business at artificially determined price levels. Absent the collusive conduct, the business would have gone to other providers, or may have been awarded to Bank of America on better terms for issuers. As a result of this misconduct, state, local and not-for-profit 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 market.
The settlement agreement alleges that the bid-rigging took place from 1998 to 2003, and that Bank of America rigged bids, received "last looks" on bids and submitted non-competitive courtesy bids on municipal bond investments.
Under the settlement, eligible government and not-for-profit entities in Massachusetts will be entitled to claim approximately $2,562,500 from the settlement fund as restitution for estimated overcharges that resulted from Bank of America's fraudulent conduct. Eligible entities will be notified of the settlement through a claims administration process. Bank of America will reimburse the Attorneys General for the costs of their investigation and attorneys fees.
Bank of America was granted conditional leniency under the Federal Department of Justice's Corporate Leniency Program. As part of that program, Bank of America voluntarily self-reported its wrongdoing and agreed to pay restitution to those entities that entered into municipal bond derivatives transactions with Bank of America. Bank of America also agreed to provide information regarding the conspiracies and to provide full cooperation to the DOJ and the states.
The states continue to pursue an investigation of various other providers and brokers in this industry. In November, Attorney General Coakley sued Tradition (North America) Inc. in Massachusetts Superior Court for its role as a broker for the Commonwealth on several municipal investment agreements.
Other states participating in the settlement with Bank of America include Alabama, California, Connecticut, Florida, Illinois, Kansas, Maryland, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.
Assistant Attorney General Mary Freeley and paralegal Helen Hood of Attorney General Coakley's Antitrust Division and Assistant Attorneys General Aaron Lamb and Madonna Cournoyer, Legal Analyst Melissa Swindel and paralegal Brian Daly of the Insurance and Financial Services Division are handling the case for the Commonwealth. The divisions are led by William Matlack and Glenn Kaplan, respectively.