TRENTON — Bank of America will pay $67 million under a multi-state settlement for its alleged involvement in a nationwide scheme to rig bids and engage in other anti-competitive conduct that defrauded state agencies, municipalities, school districts and not-for-profit entities in their purchase of municipal bond derivatives, New Jersey’s Attorney General’s Office announced.
This is one component of an overall, $137 million settlement Bank of America is entering into simultaneously with the U.S. Securities and Exchange Commission, the federal Office of the Comptroller of the Currency, the Internal Revenue Service, the Federal Reserve and 20 states, including New Jersey.
The combined settlements will provide restitution to state agencies, municipalities and non-profits — both within New Jersey and throughout the United States — who entered into municipal bond derivative investments with Bank of America and were injured by the alleged scheme. Eligible New Jersey entities will receive a total of approximately $1.4 million under the settlement.
The global settlements are the result of a broad and on-going criminal and civil investigation. The investigation involves the Department of Justice’s Antitrust Division, the SEC, OCC and IRS, and is focused on individuals at Bank of America and other major financial institutions, as well as certain brokers. The investigation is focused on the marketing and sale of municipal derivative investments. These instruments 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 risk.
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 scheme enriched financial institutions or brokers at the expense of state agencies, towns, cities, school districts and nonprofits. As a result of this alleged 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.
Other states joining New Jersey in the Bank of America settlement include Alabama, California, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.
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