WASHINGTON — Bank of America Merrill Lynch has agreed to pay more than $137 million, as well as to take remedial steps, to settle what is the first but possibly not last enforcement actions over bid-rigging charges related to muni reinvestment contracts.
The charges were brought by four federal securities, banking and tax regulators, as well as 20 state attorneys general, and concern the period from 1997 to 2005.
The Securities and Exchange Commission, Internal Revenue Service, Office of the Comptroller of the Currency, Federal Reserve and the attorneys general collaborated with the Justice Department in parallel civil and criminal cases, and federal officials made clear Tuesday that their collaboration is continuing in probes of widespread wrongdoing in the municipal bond market that will probably result in many further enforcement actions against investment banks, brokers, providers of investment agreements and individuals.
"Stay tuned," Christine Varney, an assistant attorney general for antitrust, and Elaine Greenberg, the head of the Securities and Exchange Commission's muni and public pension unit, said separately. Varney spoke in a press briefing, and Greenberg in an interview. "You'll see a lot more activity in the coming months," Varney added.
The actions against Bank of America, which end federal and state probes of the company in this matter, though not investigations of its former officials, are crucial because it was the first bank to step forward and report to the Justice Department evidence of improper bidding practices in the muni market more than three years ago.
As a result, it was granted amnesty from criminal charges by the Justice Department in 2007 in return for full cooperation in the antitrust probe. An unidentified confidential witness from the bank has been giving vast amounts of information to federal and state regulators, and to lawyers who have filed class actions and other lawsuits on behalf of issuers. The Justice Department filed charges against, or reached plea agreements with, more than a dozen firms and individuals in connection with its criminal probe. This is the first civil action against any party to the matter.
Bank of America, which neither admitted nor denied the charges, said in a press release Tuesday that it "is pleased to put this matter behind it, and has already voluntarily undertaken numerous remediation efforts. Bank of America continues to cooperate with all agencies on their inquires into practices by various companies participating in the municipal derivatives markets during this time period."
Much of the $137 million from the settlements will go to municipal issuers that, according to Varney, will probably give up their right to sue the bank by accepting the money. The lion's share, $67 million, is to go the 20 attorneys general to settle state law violations, and most of that will be distributed to muni issuers defrauded by the bank, sources said, though it was unclear how many issuers would get payments. Another $36 million is to be disgorged to the SEC to settle securities fraud charges and will be distributed to 88 issuers from which the bank unit illegitimately won bids to provide guaranteed investment contracts, repurchase agreements and forward purchase agreements among other contracts. The amount was based on the profits received by the bank for the contracts, Greenberg said.
Another $25 million is to go to the Internal Revenue Service to settle tax law violations. An IRS spokesman refused to comment. Sources said that Bank of America's $14.7 million payment to the IRS in 2007 to settle a Section 6700 probe and allegations of tax law violations over guaranteed investment contracts and blind pools was unrelated to the current probes.
The Office of the Comptroller of the Currency, which regulates the bank, is to get more than $9.2 million to settle banking charges related to 38 collateralized certificates of deposit given to muni issuers.
Both the OCC and the Federal Reserve, which regulates the bank holding company, are requiring Bank of America to take remedial steps to prevent recurrent violations.
The probes first became public after the Federal Bureau of Investigation and other federal agents raided three brokers of investments agreements — CDR Financial Products in Beverly Hills, Calif.; Investment Management Advisory Group Inc. in Pottstown, Pa., and Sound Capital Management in Eden Prairie, Minn. — in November 2006. Since then the Justice Department has charged, or reached plea agreements with, more than a dozen individuals and firms, based on testimony and tapes of numerous phone conversations.
