Posted on Wednesday, December 8, 2010
WASHINGTON — Bank of America has agreed to pay $137 million to resolve allegations that it paid for information that helped rig the bidding process and win business from cities and towns in 20 states.
Federal and state officials announced the settlements Tuesday with the nation's largest bank.
Bank of America has neither admitted nor denied wrongdoing in its settlements with the Justice Department, the Securities and Exchange Commission, the Federal Reserve and attorneys general for 20 states.
The Justice Department said Bank of America came forward and disclosed that Banc of America Securities, a division of the bank that handles securities and investments, paid for information that helped the bank gain an advantage with local governments that were looking to invest their proceeds from municipal bond sales.
The SEC said the division paid "kickbacks" to bidding agents who collect proposals for government business. In exchange, the bank received information about what other firms were bidding.
The disclosure led federal official to launch a widespread investigation into the business of reinvesting municipal bond proceeds. It also allowed the company to qualify for the department's antitrust corporate leniency program. It was granted amnesty in 2007 and avoided criminal charges and fines.
The securities unit agreed to pay $36 million in restitution to settle the SEC's civil fraud charges. It also is paying $25 million in restitution to the Internal Revenue Service and $62.5 million to the 20 states with municipalities that the government said were harmed by Bank of America's "anticompetitive conduct." The municipalities paid Bank of America more for investment services or earned less on the investments than they should have, the government said.
Bank of America's disclosure led to an aggressive, ongoing investigation, the Justice Department said.
"To be clear, we will use any and all tools at our disposal to prosecute corruption in the municipal bonds market," Assistant Attorney General Christine Varney, who heads the antitrust division, told reporters at the Justice Department. "These are taxpayer dollars that are being defrauded and we will not tolerate it." The SEC did not levy a fine against Bank of America.
In a separate accord with the Federal Reserve, Bank of America agreed to take steps to strengthen its board's oversight of compliance with proper procedures in bidding for investment business.
"Bank of America is pleased to put this matter behind it, and has already voluntarily undertaken numerous remediation efforts," the Charlotte, N.C.-based company said in a statement. "Bank of America continues to cooperate with all agencies on their inquiries into practices by various companies."
In a related action, the SEC barred Douglas Lee Campbell, a former Banc of America Securities executive, from working in the securities industry. Campbell, who was a senior vice president in the company's municipal reinvestment and risk management group, pleaded guilty in September to federal charges of conspiracy.
Municipal bonds are issued to build schools, hospitals and roads in a $2.8 trillion market. About $100 billion of the proceeds from the bond sales each year are temporarily invested in financial instruments such as derivatives before being used for the original purpose of the sales.
Nearly all the municipal bonds involved were tax-exempt. Under IRS rules, proceeds from sales of tax-exempt bonds must be invested at fair market value, to be established in a competitive bidding process.
The states involved 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.
Associated Press writer Alicia A. Caldwell contributed to this report.
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