December 23, 2011
Jefferson City, Mo. -- Attorney General Chris Koster today announced a $34.25 million settlement with GE Funding Capital Market Services, Inc. (GE Funding) as part of an ongoing nationwide investigation of alleged illegal conduct in the municipal bond derivatives industry. Under the settlement, Missouri entities will be eligible to receive more than $320,000.
As part of the multistate settlement, GE Funding has agreed to pay $30 million in restitution, a $1.25 million civil penalty, and $3 million in fees and costs. The restitution payments will go to affected state agencies, municipalities, school districts and not-for-profit entities nationwide that entered into guaranteed investment contracts with GE Funding and two of its affiliates – Trinity Funding Company, LLC and Trinity Plus Funding Company, LLC – between 1999 and 2005.
“Today’s settlement demonstrates our commitment to pursuing and obtaining restitution for Missouri citizens, no matter the complexity of the wrongdoing,” Koster said. “This settlement will help to repay the cities, taxpayers, and not-for-profit organizations that believed financial institutions like GE Funding were engaged in competitive bidding and fair dealing, which we now know was not the case.”
Today’s settlement relates to guaranteed investment contracts, which state agencies, municipalities, and other entities use to earn interest on the proceeds of a municipal bond issuance before the money is spent. The conduct that led to today’s settlement allowed certain traders at GE Funding, working with certain brokers, to determine that GE Funding would win the bid without offering its best and highest interest rate to the governmental and not-for-profit entities.
“I appreciate GE Funding’s cooperation in the states’ continuing efforts to end deceptive and anticompetitive business practices in the municipal bond derivatives market and to recover the millions of dollars lost by municipalities, schools, and not-for-profits as a result of financial fraud,” Koster added.
The states’ investigation developed evidence 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 guaranteed investment contract by allowing GE Funding to receive a “last look’ and arranging for other financial institutions to submit purposely non-winning courtesy bids. On many occasions, due to the “last look,” GE Funding was able to lower its bid to the issuer and still win the transaction.
GE Funding is the fifth financial institution to settle with the multistate working group in the ongoing municipal bond derivatives investigation, following Bank of America, UBS AG, JP Morgan and Wachovia. To date, Missouri entities are eligible to receive more than $5 million from these five settlements. Missouri has also recovered more than $23,000 for the City of Lee’s Summit through a settlement with Martin Kanefsky, the former chief executive officer of Kane Capital Strategies, Inc., a now-defunct broker in the industry.
The multistate settlement is part of a coordinated global $70 million settlement that GE Funding entered into today. As a part of this global settlement, GE Funding also reached agreement with the U.S. Securities and Exchange Commission, the U.S. Department of Justice’s Antitrust Division and the Internal Revenue Service.