WASHINGTON — Bank of America Corp. will pay $137.3 million in restitution to settle charges it engaged in anti-competitive activity in the municipal bond market from 1998 to 2003 under a deal announced Tuesday by several federal and state government agencies.
In an unprecedented move, B of A itself alerted the government to the fraud, which it acknowledged as part of the agreement. As a result, the deal was significantly less harsh than it would have been had regulators detected the activity on its own, government officials said.
Under the deal, the banking company will pay the Securities and Exchange Commission $36 million in connection with the fraud, and an additional $101 million to other federal and state agencies to help repay the 38 municipalities and non-profits harmed by the company's conduct. B of A also entered into a written agreement with the Federal Reserve Board to improve certain control practices.
"This ongoing investigation has helped to expose wide-spread corruption in the municipal reinvestment industry," Robert Khuzami, director of the SEC's Division of Enforcement, said in a press release. "The conduct was egregious — in return for business, the company repeatedly paid undisclosed gratuitous payments and kickbacks and affirmatively misrepresented that the bidding process was proper."
According to agreements, Bank of America employees engaged in illegal conduct, including bid rigging and other deceptive practices in marketing and selling of tax-exempt municipal bond derivatives contracts.
In the SEC order, it found that the bank's bidding process was not competitive because it was "tainted" by undisclosed consultant agreements or payments and as a result the "improper" bidding practices affected the prices of the reinvestment products and "jeopardized" the tax exempt status of the securities, which the principal amounts totaled billions of dollars.
In some cases, the agents gave Bank of America employees information on competing bids and deliberately obtained off-market "courtesy" bids or purposefully non-winning bids so that Bank of America could win the bid. Bank of America won the bids for 88 affected reinvestment instruments. In return, Bank of America steered the bids to those bidding agents and rewarded those agents with kickbacks.
The SEC found that former officers of Bank of America Securities LLC participated and condoned these practices.
Bank of America self-reported its conduct and admitted its wrongdoing as part of the Justice Department's Antitrust Corporate Leniency Program. Bank of America is the first institution to self report anticompetitive conduct.
Through the Leniency Program a corporation can avoid criminal conviction and fines if it is self reports the conduct and admits wrongdoing.
The Justice Department's investigation has resulted in an ongoing investigation by the department on anticompettive activity in the bond market.
"Bank of America's disclosure of wrongdoing and cooperation has led to an aggressive, ongoing investigation by the Department of Justice into anticompetitive activity in the municipal bond derivatives industry," said Christine Varney, Assistant Attorney General in charge of the Department of Justice's Antitrust Division, said in a press release. "The bank's participation in the leniency program has also resulted in today's resolution to address the harm caused by its wrongdoing. The Division's investigation of this matter continues and the prosecution of anticompetitive conduct in the financial markets remains our highest priority."
The agreements also require the bank to enhance its policies and internal controls for its competitive bidding particularly in the department where the illegal conduct occurred.
