Massachusetts State Agencies and Non-Profits to Receive $925,000 From Wachovia in Multi-State Bid Rigging Investigation
Investment Provider Settles Over Nationwide Scheme of Bid Rigging Investment Contracts; Pays $58.75 Million to States
BOSTON - Massachusetts non-profits and state agencies are eligible to receive approximately $925,000 in restitution as part of a multi-state settlement with Wachovia Bank resolving allegations of bid rigging investment contracts, Attorney General Martha Coakley announced today. Wachovia will pay $58.75 million as a result of a national settlement with 24 states and the District of Columbia.
“Today’s settlement is an important step in our continuing effort to hold financial institutions accountable for improper and anticompetitive conduct in the marketplace,” said Attorney General Martha Coakley. “I am pleased that Wachovia has taken responsibility for its conduct and will pay restitution to those harmed by this fraud. Our investigation into this type of conduct by other financial institutions remains ongoing.
The states investigation focused on widespread price-fixing and bid-rigging conspiracies among providers and brokers of municipal bond derivatives. The states allege that Wachovia and its marketers profited by rigging bids and receiving “last looks” for municipal bond derivatives. As a result of their agreements, Wachovia marketers were able to win more business for Wachovia in the municipal bond derivatives industry and to obtain that business at artificially determined price levels. Absent the collusive conduct, the business could have gone to other providers, or may have been awarded to Wachovia 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 is part of a nationwide investigation of alleged anticompetitive and fraudulent conduct in the municipal bond derivatives industry. Massachusetts, 23 states and the District of Columbia have alleged that Wachovia engaged in bid-rigging and other anticompetitive conduct that defrauded state agencies, municipalities, school districts and not-for-profit entities in their purchase of municipal bond derivatives and other municipal finance contracts. Governmental and nonprofit entities nationwide that entered into municipal derivative agreements with Wachovia between 1998 and 2004 will be entitled to more than $54.5 million in restitution from the settlement. The agreement also provides that Wachovia will pay the states collectively $1.25 million in penalties and $3 million in fees and costs of the investigation.
The states’ settlement is part of a coordinated federal and state law enforcement and regulatory effort that involves the U.S. Department of Justice’s Antitrust Division, the Securities Exchange Commission (SEC), the Office of Comptroller of the Currency (OCC), and the Internal Revenue Service (IRS). Wachovia will pay additional restitution, penalties and interest under its agreement with the SEC, OCC and IRS.
Eligible government and not-for-profit entities in Massachusetts may claim an estimated $925,000 from the states’ settlement fund as restitution for alleged overcharges that resulted from Wachovia’s fraudulent conduct. Eligible entities will be notified of the settlement through a claims administration process.
Wachovia is the fourth financial institution to settle with the state working group in the ongoing investigation of this conduct. In December, 2010, Attorney General Coakley announced a similar settlement with Bank of America. AG Coakley also reached agreements with JP Morgan Chase and UBS earlier this year. The states continue to pursue investigations of various other providers and brokers in this industry.
Wachovia Bank merged with Wells Fargo Bank in 2008. Today’s settlement relates to conduct by Wachovia Bank, N.A. and its predecessors.
Other states participating in the settlement with Wachovia are Alabama, California, Colorado, Connecticut, District of Columbia, Florida, Idaho, Illinois, Kansas, Maryland, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin.
Assistant Attorneys General Mary Freeley and Aaron Lamb and Legal Analyst Melissa Swindel of Attorney General Coakley’s Insurance and Financial Services Division are handling the case for the Commonwealth.