The complex case involves efforts to restrain competition in the municipal bond derivative industry

“Illegal conduct in the financial services industry helped cause the global recession that we’re only just beginning to emerge from,” said Keith Dubanevich, Chief of Staff and Special Counsel to Attorney General Kroger. “We need to take action against companies that break the law to ensure that history doesn’t repeat itself.”

The case arose from the market for municipal bonds, which governments and non-profits typically sell in order to finance capital projects such as mass transit, roads and schools.  The proceeds of the bond sale – the capital that will be used to pay for the project – are not needed all at once. As a result, the money is re-invested until the cash is needed to pay for a particular phase of the project. This is known as the municipal bond derivative market.

Like other financial institutions, Bank of America plays in a role in the municipal bond derivative market by assisting in the marketing and investing of the bond proceeds. Brokers, bidding agents and other financial advisors owe a fiduciary duty to act for the benefit of bond issuers that engage them to assist in municipal bond derivative transactions. These transactions are often awarded by a competitive bidding process or direct negotiations. Instead of a fair market, Bank of American is alleged to have engaged in illegal and anti-competitive practices that reduced the return that municipal bond issuers obtained when reinvesting in the derivative market. Under today’s settlement, Bank of America will pay $67 million, including $62.5 in restitution to governmental and not-for-profit victims who re-invested municipal bond proceeds.

Today’s agreement is the result of a federal/state working group investigation that looked into violations of state and federal antitrust laws, and false claims statutes in the marketing, sale and placement of municipal bond derivatives.

The investigation revealed that, from at least 1998 to 2003, municipal bond issuers in many states received artificially suppressed returns on bond proceeds because of alleged bid-rigging and other anti-competitive conduct by Bank of America and other financial institutions and brokers. These schemes benefited financial institutions and brokers at the expense of state agencies, cities, counties and school districts.

Oregon will receive about $268,000 of the settlement funds to reimburse governmental and nonprofit victims who entered into tainted transactions with Bank of America. Oregon’s share of the settlement is based on the fact that Bank of America did not handle most of the municipal bond derivative investing in Oregon.

The Oregon Attorney General is charged with enforcing federal and state antitrust statutes. Senior Assistant Attorney General Tim Nord handled the case for the Department of Justice.

Attorney General John Kroger leads the Oregon Department of Justice. The Department’s mission is to fight crime and fraud, protect the environment, improve child welfare, promote a positive business climate, and defend the rights of all Oregonians.

• BOA Settlement Agreement (pdf)

Contact:

Tony Green, (503) 378-6002 tony.green@doj.state.or.us |