Former Broker Involved in Anticompetitive Municipal Bond Derivatives Schemes Enters into Agreement with AG Coakley
Today's settlement between Attorneys General in 24 states and Kanefsky follows his plea agreement last year with the United States Department of Justice ("DOJ").
On August 12, 2010, Kanefsky entered into a plea agreement with the DOJ's Antitrust Division, admitting to two counts of conspiracy, and one count of wire fraud relating to his role as a broker or bidding agent hired to conduct a competitive bidding process for the award of investment agreements.
In his role as broker, Kanefsky solicited and received intentionally losing bids for certain investment agreements and gave co-conspirators at major financial institutions who were bidding on the investment agreements information about the prices, price levels or conditions in competitors' bids, a practice known as a "last look," which is explicitly prohibited by U.S. Treasury regulations. The "last looks" allowed marketers at certain financial institutions, with whom Kanefsky had close business relationships, an opportunity to see their competitor's bids before giving their own final bid. The illegal "last looks" and bidding manipulation compromised a competitive bidding process and allowed co-conspirator financial institutions to win investment contracts at artificially determined price levels.
Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed, or to hedge interest-rate risk. In April 2008, the states began investigating allegations that certain large financial institutions including national banks and insurance companies, and certain brokers and swap advisors, engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.
Kanefsky is the first broker to settle with the state Attorneys General, and follows settlements with Bank of America, UBS AG & J.P. Morgan. To date, the state Attorneys General have obtained settlements valued at approximately $250 million.
Other states joining Attorney General Coakley in this settlement are: Alabama, California, Connecticut, Colorado, 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.
This matter was handled by Assistant Attorney General Madonna Cournoyer and Legal Analyst Melissa Swindel of Attorney General Coakley's Insurance and Financial Services Division, and AAG Mary Freeley and paralegal Helen Hood of AG Coakley's Antitrust Division.