For Immediate Release - December 23, 2011

$34.25 Million National Settlement Reached with GE Funding Capital Market Services, Inc. Over Illegal Investment Contract Scheme

Massachusetts to Participate in $30 Million Restitution Fund

BOSTON – A $34.25 million national settlement has been reached with a financial services company as part of a nationwide investigation of alleged anticompetitive and fraudulent conduct in the municipal bond derivatives industry, Attorney General Martha Coakley’s Office announced today.  The settlement with GE Funding Capital Market Services, Inc. (“GE Funding”), will provide a total of $30 million in restitution to affected state agencies and not-for-profits eligible in Massachusetts and the 24 participating states.

“Today’s settlement is an important step in our continuing effort to hold financial institutions accountable for improper and anticompetitive conduct in the marketplace,” AG Coakley said.  “I am pleased that GE Funding will take responsibility for the actions of its agents.  Our investigation of this conduct is ongoing.

Massachusetts and the other states alleged that GE Funding engaged in illegal conduct that defrauded state agencies, municipalities, school districts and not-for-profit entities in their purchase of guaranteed investment contracts or “GICs”.   As part of the multistate settlement, GE Funding has agreed to pay $30 million in restitution to affected state agencies, municipalities, school districts and not-for-profit entities nationwide that entered into GICs with GE Funding and two of its affiliates – Trinity Funding Company, LLC and Trinity Plus Funding Company, LLC - between 1999 and 2005.  The agreement also provides that GE Funding will pay the states a $1.25 million civil penalty and $3 million in fees and costs of the investigation.

The settlement agreement principally alleges that certain traders at GE Funding, in concert with certain brokers, engaged in conduct that allowed the broker to determine in advance that GE Funding would win a bid for a GIC by allowing GE Funding to receive a “last look” and arranging for other financial institutions to submit purposely non-winning courtesy bids.  As a result of this alleged scheme, GE Funding was able to lower its bid to the issuer and still win the transaction on many occasions.  Absent the collusive conduct, the business would have gone to other providers, or may have been awarded to GE Funding on better terms for the government or not-for-profit bond issuers. 

As a result of this misconduct, state, local and not-for-profit bond issuers entered into contracts at suppressed rates of return on certain GICs compared to what they would have received in a competitive market. 

The states’ settlement is part of a coordinated federal/state law enforcement and regulatory effort that also involves the U.S. Department of Justice’s Antitrust Division, the Securities Exchange Commission and the Internal Revenue Service.  GE Funding will pay additional restitution, penalties and interest under its agreement with the SEC and IRS.

It is estimated that eligible government and not-for-profit entities in Massachusetts will be entitled to claim approximately $1.8 million from the states’ settlement fund to compensate for estimated overcharges that resulted from GE Funding’s fraudulent conduct.  Eligible entities will be notified of the settlement through a claims administration process. 

GE Funding is the fifth 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, UBS and Wachovia earlier this year.  The states continue to pursue an investigation of various other providers and brokers in this industry.

Other states participating in the settlement with GE Funding are Alabama, Colorado, Connecticut, District of Columbia, Florida, Idaho, Illinois, Iowa, 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 with assistance from paralegal Helen Hood of the Antitrust Division. 


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