December 7, 2010
Jefferson City, Mo.— Attorney General Chris Koster announced today that Bank of America will pay $67 million nationally under a multistate settlement for its involvement in a nationwide scheme to rig bids and engage in other anticompetitive conduct that defrauded Missouri municipalities, school districts and not-for-profit entities in the purchase of municipal bond derivatives. The multistate settlement is one component of an overall $137 million settlement Bank of America is entering into simultaneously with several federal agencies.
The combined multistate settlements will provide eligible entities the opportunity to receive restitution for the wrongdoing. Approximately 50 Missouri entities are eligible to receive more than $2.6 million under the settlement.
Today's global settlements are the result of a broad and ongoing criminal and civil investigation that focuses on individual executives at Bank of America, other major financial institutions and certain brokers in connection with the marketing and sale of municipal derivative investments. These derivatives are typically investment contracts that government issuers and not-for-profit entities use to reinvest the proceeds of tax-exempt bond offerings until the funds are needed or to hedge against interest rate fluctuations. The transactions are often awarded after a competitive bidding process or negotiated directly between the financial institution and the issuer.
As alleged in the states' settlement agreement, during the period 1998 through 2003, Bank of America and other financial institutions and brokers allegedly rigged bids, received and provided "last looks" on bids, and submitted non-competitive "courtesy" bids on these investments. The alleged schemes enriched financial institutions or brokers at the expense of state agencies, towns, cities, school districts and not-for-profit entities. 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 marketplace.
"This settlement recovers money that municipal bond issuers and not-for-profit organizations would have received but for the alleged bid rigging of Bank of America and its co-conspirators," Koster said. "Bank of America and its co-conspirators engaged in sham bids in which the outcome had been predetermined in order to provide the illusion of competitive bids and fair dealing while enriching financial institutions and brokers at the expense of cities, taxpayers and not-for-profit organizations."
Bank of America voluntarily self-reported the wrongdoing to the Department of Justice (DOJ). Under the DOJ's Corporate Leniency Program, Bank of America was granted conditional leniency based on its acknowledgement of wrongdoing, significant cooperation and making restitution. To date the DOJ has brought criminal actions against seven individuals and one company, and it has obtained guilty pleas against eight others involved in the schemes.