Tuesday, December 7, 2010
Texas, 19 States Resolve Antitrust Investigation Into Bank of America's Municipal Derivatives MarketingAUSTIN Bank of America today entered into a $67 million agreement with 20 state attorneys general that will resolve the states’ antitrust investigation into the bank’s marketing of municipal derivatives.
Under the agreement with Texas Attorney General Greg Abbott and 19 other state attorneys general, Bank of America must also make full restitution to any state, local and not-for-profit entities with which it entered into municipal derivative agreements between 1998 and 2003. Today’s settlement stems from an investigation that was opened after Bank of America self-reported its own wrongdoing to the U.S. Department of Justice in 2007.
Qualifying governmental and not-for-profit entities will receive notice of eligibility and, to obtain restitution, must participate in the claims process established under today’s agreement. Eligible Texas entities are expected to receive approximately $3.5 million from the restitution fund.
Today’s agreement resolves the states’ investigation into allegations that Bank of America colluded with multiple financial institutions to artificially increase costs for municipal derivative products. Governmental bodies typically use municipal derivatives to restructure their debt obligations or to reinvest the proceeds of their bond offerings. This reinvestment ordinarily occurs when bond issuers do not immediately need access to funds and want to mitigate the cost of debt by investing the proceeds. State agencies, local governments and other qualified issuers use municipal bonds to finance a variety of projects, including mass transit, road and street repair, and building construction.
In 2008, the states launched an antitrust investigation into allegations that Bank of America and other financial institutions as well as certain brokers with whom they had working relationships unlawfully conspired to artificially set derivatives prices. During the investigation, the states uncovered a variety of improper conduct, including bid rigging, receiving and providing last looks, submitting non-competitive courtesy bids, and submitting fraudulent certifications of arms-length bidding.
Utilizing these schemes, the banks and their brokers sought to artificially raise the prices at the expense of the bond issuer and taxpayers. As a result, state, local and not-for-profit entities that entered into municipal derivatives contracts were forced to pay artificially inflated interest rates and received lower returns on their investments than they would have earned in a competitive marketplace.
Bank of America is the first of several municipal derivatives marketers to reach a resolution with the states and therefore resolves the attorneys’ general antitrust investigation. Further, Bank of America was the first (and only) entity to voluntarily self-report its anticompetitive conduct to the U.S. Department of Justice. In January 2007, the DOJ granted Bank of America conditional leniency pursuant to the DOJ Antitrust Division’s Corporate Leniency Program. Because Bank of America elected to cooperate with the states’ investigation, the attorneys general benefited from its information and evidence.
Other state attorneys general participating in the Bank of America settlement include Alabama, California, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania and South Carolina.