Tuesday, December 07, 2010

Bank of America Agrees to Pay $137 Million to Avoid Charges in Bid Rigging Probe

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

As a condition of admission into the Department of Justice's antitrust corporate leniency program, Bank of America has agreed to pay a total of $137.3 million in restitution to federal and state agencies for its role in a conspiracy to rig bids in the municipal bond derivatives market.

As a result of its agreement to make full restitution, as well as its voluntary disclosure of its anticompetitive conduct and its ongoing cooperation, Bank of America will not be required to pay penalties for the bidding activity, according to a December 7 Justice Department announcement.

Antitrust Leniency Program

Bank of America reported the bidding irregularities to the Justice Department in 2004. The illegal conduct took place between 1998 and 2003. The Antitrust Division accorded Bank of America conditional leniency in 2007.

The antitrust leniency program protects applicants from criminal conviction for a violation of the U.S. antitrust laws. The program protects the first offender to come forward, so long as the company was not the originator or leader of the conspiracy and the company cooperates with the investigation and meets other obligations, including the payment of restitution.

Bank of America has now entered into restitution agreements with the U.S. Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Office of the Comptroller of Currency (OCC), and 20 state attorneys general.

Bank of America agreed to pay the IRS $25 million. Through its resolutions with the OCC and SEC, Bank of America will make payments of $9.2 million and $36.1 million, respectively, to the counterparties affected by the practices, according to Bank of America.

Multi-State Settlement

Bank of America has agreed to pay the state attorneys general $62.5 million in restitution and to refrain from conspiring to rig bids for municipal bond derivatives. The states will also receive $4.5 million for the costs related to the investigation.

The states involved in the multi-state settlement are: Alabama, California, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, and Texas.

Text of the state settlement agreement appears here on the California Attorney General’s website.

Bank of America Statement

Bank of America said in a December 7 statement that it was “pleased to put this matter behind it, and has already voluntarily undertaken numerous remediation efforts.” The financial institution said that it: “continues to cooperate with all agencies on their inquiries into practices by various companies participating in the municipal derivatives markets during this time period.”

Ongoing Investigation

The Justice Department's ongoing investigation into bidding practices in the municipal bond derivatives market has resulted in guilty pleas by from eight executives for antitrust and related federal crimes.

Indictments have been brought against other alleged participants in the conspiracy, and a trial of Beverly Hills-based Rubin/Chambers, Dunhill Insurance Services Inc. and some of its current and former executives is expected to begin in September 2011. Municipal bonds are used by state agencies, municipalities, and others to finance a variety of projects, including school construction and street repairs.

During a conference call, Christine Varney, Assistant Attorney General in charge of the Antitrust Division, declined to indicate whether other banks were cooperating with the government on this issue, noting only that “the investigation continues apace.”

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