BofA Agrees to $137 Million Settlement in Municipal Bond Investigation

U.S. Justice Department officials said today that Bank of America has agreed to pay $137.3 million to resolve allegations of bid rigging in the municipal bond industry. B of A entered a global agreement with 20 states and four federal agencies, including the Securities and Exchange Commission. According to SEC documents, Bank of America employees conspired to rig bids in connection to the marketing and sale of tax-exempt municipal bond derivative contracts. SEC documents are here.

Assistant Attorney General Christine Varney, who heads the department’s Antitrust Division, said Bank of America’s illegal conduct happened between 1997 and 2004. She said she is “severely restrained” in talking about the probe, including whether any other banks are cooperating.

In a conference call with reporters this afternoon, Varney called the agreement “unprecedented” and said $137 million is a “significant and appropriate settlement.” The amount that municipalities lost is “something we are looking very closely at,” she said.

“Stay tuned to this channel,” Varney said. “I think you will see a lot more activity in the coming weeks and months. We are committed to getting full restitution to all of the municipalities that were victims of this scheme.”
Under the Justice Department’s leniency program, the bank will not be prosecuted for the conduct as long as there is continued cooperation, Varney said.

Bank of America’s settlement is “likely the tip of the iceberg,” said Andrew Gavil, a law professor at Howard University in Washington, D.C.. He said other conspirators may pay much higher penalties.

The government has identified more than a dozen firms, including JPMorgan Chase & Co., UBS AG, and Societe Generale as unindicted co-conspirators in a criminal case brought by the Justice Department against a Los Angeles investment broker.

JPMorgan, UBS, a unit of General Electric Co. and a former subsidiary of Belgian bank Dexia SA have also reported in regulatory filings that they face civil suits by the U.S. Securities and Exchange Commission. The companies say they are cooperating with the government.

The investigation centers on investment agreements that municipalities enter into with money raised through bond sales. The “guaranteed” investment contracts let B of A earn a return on the funds until the cash is needed for schools, roads or other public works.

Napoli Bern Ripka is conducting its own investigation of Bank of America’s improper sale of municipal bonds and is currently interviewing municipalities who believe they have a claim against B of A or any bank for bid-rigging.

Contact Information
Napoli Bern Ripka LLP
Securities Department
212-267-3700