Attorney General Edmund G. Brown Jr. today announced a $67 million multi-state settlement with Bank of America for illegal activity by some of its employees in investing the proceeds of municipal bonds. This activity amounted to bid rigging, price fixing, and other anti-competitive practices that defrauded state agencies, local governments and non-profit groups.
“This settlement means that government agencies facing lower budgets will recover millions of dollars in restitution for money that they were deprived of by some unscrupulous bond-derivative investment advisors,” Brown said.
After an internal investigation, Bank of America voluntarily reported the scheme in 2004 to the federal Department of Justice and applied for the Corporate Leniency Program, which reduces potential criminal liability in exchange for cooperation. Throughout the Attorney General’s investigation, Bank of America cooperated in identifying California-based transactions and victims.
This action is part of a $137 million overall series of settlements agreed to by Bank of America with 20 states and federal agencies, including the Internal Revenue Service and the Securities and Exchange Commission. California agencies and non-profits will receive about $6 million in restitution under today’s multi-state settlement.
The illegal activities date back at least to 1998, and they include rigging bids, compensating losing bidders, submitting courtesy bids, deliberately losing bids and agreeing not to bid. These schemes enriched the financial institutions and brokers at the expense of state agencies, cities, school districts and non-profits, who received lower rates of return on investments or paid higher rates to protect their funds.
The U.S. municipal bond market is large. Some $400 million in new tax-exempt bonds are issued each year, and the total market value of exempt bonds is almost $2.8 trillion. The bonds are an important source of funds for governmental and non-profit agencies. They are used for projects such as mass transit, construction of schools and street repair.
Today’s settlement is one of a string of contemplated actions against other bond brokers and major financial institutions that engaged in similar illegal practices.
The other states joining California in the settlement are Alabama, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.