Bank of America will pay $67 million for its involvement in a nationwide scheme to rig bids and engage in other anticompetitive conduct that defrauded state agencies, county governments, and non-profits in their purchase of municipal bond derivatives, Maryland Attorney General Douglas Gansler announced Dec. 10.
The settlement is one component of a larger $137 million dollar settlement Bank of America is entering into simultaneously with the Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), the Internal Revenue Service (IRS) and the Federal Reserve.
The combined settlements will provide restitution to state agencies, county governments, and non-profits within Maryland and throughout the United States who were injured as a result of entering into municipal bond derivative investments involving Bank of America. Eligible Maryland entities will receive a total of approximately $4 million under the settlement.
The settlements are the result of an ongoing investigation by Maryland and a multi-state group focusing on individuals at Bank of America, other major financial institutions, and certain brokers in connection with the marketing and sale of municipal derivative investments. The investments are typically investment contracts that government bond issuers use to reinvest the proceeds of tax-exempt bond offerings until the funds are needed. The transactions are often awarded after a competitive bidding process or negotiated directly between the financial institution and the issuer.
“Today’s settlement returns $4 million to Maryland state agencies and county governments defrauded by bid-rigging and other secret schemes,” said Attorney General Gansler. “Bank of America and its co-conspirators promised our state agencies and local governments competitive bids. In reality, bids were rigged to enrich financial institutions and brokers at the expense of taxpayers.”
From 1998 through 2003, Bank of America and other financial institutions and brokers rigged bids, received and provided “last looks” on bids, and submitted non-competitive “courtesy” bids on these investments, Gansler said. The schemes enriched financial institutions or brokers at the expense of government entities. As a result of this misconduct, state agencies, county governments, and non-profits 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 marketplace.
Other states joining Maryland in the Bank of America settlement include Alabama, California, Connecticut, Florida, Illinois, Kansas, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.