12/13/2010 Bank of America Pays $137 Million to S…

DECEMBER 7, 2010, 3:34 PM

Bank of America Pays $137 Million in Bid-Rigging Case

By BEN PROTESS

Bank of America agreed on Tuesday to pay federal and state Mario Tama/Getty Images
authorities $137 million to settle charges that its securities Bank of America plans to begin
testing new bank offerings in
group helped rig bids on municipal bond contracts, according to December.
the Securities and Exchange Commission.

The settlement is part of a wide-ranging inquiry into the municipal derivatives markets. The
investigation has centered on whether Wall Street banks improperly won investments while
defrauding cities, school districts and nonprofits. Eight bankers have already pleaded guilty
to charges of fraud and conspiracy, including former executives at Bank of America, UBS and
JPMorgan Chase.

“This ongoing investigation has helped to expose wide-spread corruption in the municipal
reinvestment industry,” Robert Khuzami, director of the S.E.C.’s Division of Enforcement,
said in a statement. “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.”

Bank of America first reported its own potential wrongdoing to the Justice Department in
2007 — the only bank to do so. The conduct is believed to have taken place between 1998
and 2003.

In return, the federal government agreed not to bring criminal charges against the company,
immunity that does not apply to its employees. One former executive, fired in 2002, pleaded
guilty to charges of fraud and conspiracy. As part of the settlement with the S.E.C., the
company neither admitted nor denied wrongdoing.

“Bank of America is pleased to put this matter behind it, and has already voluntarily
undertaken numerous remediation efforts,” the company said in a statement.

The bank said 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.”

When towns and cities sell bonds, the municipalities generally invest the proceeds until they
need to use the money. A middleman, known as a bidding agent, facilitates the process,
setting up a competitive bid for those investment dollars.

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In the charges against Bank of America, the S.E.C. alleged the process was not competitive
because bidding agents directly steered business to the bank. Bank of America employees,
investigators claimed, returned the favor, in part through kickbacks.

Besides the S.E.C., the settlement involves the Office of the Comptroller of the Currency, the
Internal Revenue Service and 20 states. Bank of America agreed to pay $25 million to the
I.R.S., $9 million to the O.C.C., $4.5 million to state agencies and $100 million to
municipalities, nonprofits and others.

“This settlement is only a first step in an ongoing investigation aimed at recovering

restitution from the nation’s biggest financial institutions for relentlessly shortchanging
taxpayers and nonprofits,” Connecticut’s attorney general, Richard Blumenthal, said in a
statement. “The conspiracy admitted by Bank of America deceived and defrauded
municipalities and nonprofits in a web of bid-rigging and deceptive conduct, costing millions
and involving several of the country’s major financial institutions.”

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Bank of America reaches bid-rigging

settlement
Bank to pay $137 million for role in ploy to avoid competing for investment
contracts from government, nonprofits.

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By Rick Rothacker
rrothacker@charlotteobserver.com
Posted: Tuesday, Dec. 07, 2010

Four federal agencies and 20 states on Tuesday announced a sweeping $137 million settlement with
Bank of America for its role in a bid-rigging scheme that played out at the Charlotte bank and other
major financial institutions.

Authorities said the conspiracy defrauded state agencies, cities and towns, and nonprofits that
sought to invest with banks the millions they borrowed through bond offerings for hospitals, apartment
complexes and other projects. The practices occurred from 1998 through 2003, the bank said.

The settlement, which includes $3.4 million for North Carolina, is the result of a 2007 leniency
agreement Bank of America reached with the Department of Justice, which spared it from criminal
prosecution in return for its cooperation. Bank of America is paying restitution but no fines.

Federal agencies and states are continuing a broad civil and criminal probe of individuals at Bank of
America, other major financial institutions and brokers in connection with the marketing and sale of
the investments, the N.C. Attorney General said. The investigation has resulted in criminal actions
against seven individuals and one company, plus guilty pleas against eight others, including a former
Bank of America employee.

"This ongoing investigation has helped to expose wide-spread corruption in the municipal
reinvestment industry," said Robert Khuzami, director of enforcement at the Securities and Exchange
Commission, one of the agencies in the probe. "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."

At a news conference, U.S. Assistant Attorney General Christine Varney said the settlement was the
largest to stem from the department's corporate leniency program, which encourages companies to
report antitrust violations. Bank of America will not be prosecuted as long as it continues to
cooperate and meets all obligations.
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The bank was the first and only company to self-report its activities in the case, officials said. The
Justice department's investigation began after the bank approached the agency, Deputy Assistant
Attorney General Scott Hammond said. The bank wasn't considered the leader or organizer of the
conspiracy, which would have made it ineligible for the program, Hammond said.

Varney told reporters she couldn't comment on the ongoing investigation but said there would be "a
lot more activity in coming weeks and months." She wouldn't say how much taxpayers lost in the
wide-ranging bid-rigging conspiracy, but said it's something the department is "looking very carefully
at."

Bank of America, in a statement, said it was pleased to put the matter behind it and that it has
already taken voluntary steps to improve its operations. The bank has fired employees involved.
Former Merrill Lynch executives now run its municipal derivatives business.

"Bank of America continues to cooperate with all agencies on their inquiries into practices by various
companies," the bank said.

A guilty plea agreement in September by former Bank of America employee Douglas Campbell
provided a window into the bid-rigging conspiracy.

Municipalities and other public entities often seek to invest money from the proceeds of municipal
bond offerings, which raise money for public projects. That's because all the money isn't spent at
once. The municipalities hire a broker to seek out competitive bids to award investment contracts.
The bidding procedures must comply with Treasury regulations tied to the tax-exempt status of
municipal bonds, which are monitored by the IRS.

The Justice Department said in court documents that Campbell and co-conspirators decided in
advance which bank would be the winning bidder for certain investment agreements brokered by a
California-based firm known as CDR Financial Products. Campbell also agreed to submit
intentionally losing bids to give the appearance of a competitive auction, the Justice department said.

As part of the scheme, kickbacks were paid by Bank of America to CDR in exchange for controlling
the bidding process and allocating who won, according to the Justice Department.

As a result of bid manipulation, the Justice Department said Bank of America won investment
contracts at "artificially determined price levels, which deprived municipal issuers of money and
property."

Campbell's compensation, including bonus, was based, among other things, on revenues generated
by the municipal derivatives group, according to court documents.

According to Bloomberg News, Campbell, 45, in a Sept. 9 court appearance repeatedly told the
judge that his illegal actions came at the expense of the public. "Kind of a common theme here," he
said. The SEC on Tuesday said it has banned Campbell from the brokerage industry, but did not
impose a civil penalty because of his cooperation.

Charlotte-based Wachovia, now owned by Wells Fargo, has said it's under investigation.

The Justice Department and SEC have told the bank that they believe two employees engaged in
improper conduct, according to a securities filing. The two employees were terminated and the bank
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is cooperating with authorities.

The settlement is one of the larger for Bank of America in recent years. In February, the bank reached
a $150 million settlement with the SEC over allegations related to its Merrill Lynch acquisition. In
2005, it finalized a $675 million mutual fund settlement that covered alleged transgressions at the
bank and FleetBoston Financial, which it bought in 2004.

Under the bid-rigging agreement, Bank of America will pay $25 million to the IRS; $107.8 million to
other federal agencies and states; and $4.5 million to attorneys general for costs related to the
investigation. The total doesn't include $14.7 million the bank agreed to pay the IRS in 2007.

The Federal Reserve and the Office of the Comptroller of the Currency, which regulate banks, also
reached agreements with the bank to improve its practices, including a requirement that the bank
submit a written plan for strengthening board oversight of the company's risk management program
in regard to bid transactions.

In North Carolina, Mecklenburg, Buncombe, Guilford, New Hanover and Wake counties, along with
the N.C. Housing Finance Agency, N.C. State University, and the University of North Carolina system,
will be eligible for North Carolina's $3.4 million in restitution. South Carolina is also part of the
settlement.

"Bid rigging stifles competition and costs taxpayers and non-profits millions of dollars," N.C. Attorney
General Roy Cooper said in a statement. "Now communities and schools across North Carolina that
were harmed by this scheme will get money back."

Cooper said he was pleased Bank of America came forward and cooperated in uncovering
problems in this industry.

Subscribe to The Charlotte Observer.

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Bank of America settles municipal bid-rigging accusations

December 7, 2010 | 10:35 am

Bank of America is paying $137 million to settle government accusations that it paid kickbacks to win business from municipal
governments.

Bank of America, the nation’s largest bank, is paying $36 million to the Securities and Exchange Commission, and $101 million to
other government authorities, the SEC said in a statement.

The settlement stems from a wide-ranging federal investigation into the mechanisms through which banks won business from
municipal clients. The Charlotte, N.C.-based bank cooperated with authorities in exchange for leniency. In settling, the bank
neither admitted nor denied the accusations.

The settlement comes a few months after a former Bank of America banker pleaded guilty to taking part in schemes to underpay
municipalities for lucrative investments. Employees at a number of other big banks have previously pleaded guilty.

At the center of the bid-rigging probe is a Beverly Hills-based firm, CDR Financial Products Inc., which was indicted by a grand
jury last fall.

CDR is accused of taking kickbacks from banks in order to steer municipal investments to the banks. According to the SEC, the
kickbacks allowed the banks to pay governments less than they would have otherwise for governement investments.

“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,” said Robert Khuzami, head of enforcement at
the SEC.

-- Nathaniel Popper
12/13/2010 Bank of America Muni Bid Rigging Pay…

Bank of America Muni Bid Rigging Payments May Be

`Tip of the Iceberg'
By Martin Z. Braun and Jeff Bliss - Dec 8, 2010

Bank of America Corp.’s agreement to pay $137 million in restitution for taking part in a nationwide
bid-rigging conspiracy for municipal-investment contracts may soon be followed by more settlements
to repay the scheme’s victims, the Justice Department’s Antitrust Division head said.

“Stay tuned to this channel -- I think you will see a lot more activity in the coming weeks and
months,” Christine Varney, the antitrust chief, told reporters yesterday. “We are committed to getting
restitution, full restitution, to all the municipalities that were victims of this scheme.”

Bank of America, which has assisted the government probe of the $2.8 trillion municipal-bond market
since at least 2007 in return for leniency, has provided documents, e-mails and recordings of phone
calls, according to court records of civil suits. In September, Douglas Lee Campbell, formerly
employed by the bank’s municipal derivatives group, pleaded guilty to taking part in a conspiracy to
pay state and local governments below- market rates on investments purchased with bond proceeds.

Bank of America’s settlement is “likely the tip of the iceberg,” Andrew Gavil, a law professor at
Howard University in Washington, D.C., said in an e-mail. He said other conspirators may pay much
higher penalties.

The government has identified more than a dozen firms, including JPMorgan Chase & Co., UBS AG,
and Societe Generale as unindicted co-conspirators in a criminal case brought by the Justice
Department against a Los Angeles investment broker.

Facing Civil Suits

JPMorgan, UBS, a unit of General Electric Co. and a former subsidiary of Belgian bank Dexia SA
have also reported in regulatory filings that they face civil suits by the U.S. Securities and Exchange
Commission. The companies say they are cooperating with the government.

Varney declined to provide details on the continuing probe. Bank of America is the largest U.S. lender
by assets.

The investigation centers on investment agreements that municipalities enter into with money raised
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through bond sales. The so-called guaranteed investment contracts let them earn a return on the
funds until the cash is needed for schools, roads or other public works. The U.S. Treasury Department
encourages competitive bidding to ensure that localities get market rates.

Prosecutors have said that favored bankers got inside information from brokers who handled bidding
for the contracts so they could carve up the market. In some cases, bankers admitted paying
kickbacks to brokers.

“I had conversations prior to the bid with the broker about who the bidders were going to be and who
was going to win or lose,” Campbell, the former Bank of America executive, told a federal judge when
he pleaded guilty on Sept. 9, according to a court transcript.

Leniency Program

Bank of America, based in Charlotte, North Carolina, has been helping the Justice Department in
return for leniency in the case. The bank was the first to self-report illegal activity and won’t be
prosecuted as long as it continues to cooperate with the government, Varney said.

“The bank’s participation in the leniency program has also resulted in today’s resolution to address the
harm caused by its wrongdoing,” Varney said in yesterday’s statement. “As a result of its voluntary
disclosure of its anticompetitive conduct and its ongoing cooperation, Bank of America will not be
required to pay penalties as a part of the agreements.”

Since the 1990s, the Antitrust Division’s leniency program has been a major boon in helping federal
investigators uncover criminal cartels, according to antitrust lawyers. Lacking the program’s
protection, banks that are found to be part of the conspiracy likely will pay much higher fines, Gavil
said.

CDR Case

In the case against one firm, Los Angeles investment broker CDR Financial Products Inc., prosecutors
say it included more than 200 deals involving about 160 state agencies, local governments and
nonprofits from California to Pennsylvania.

Three former CDR employees pleaded guilty to charges this year and agreed to cooperate with
investigators. Three others have entered not guilty pleas. CDR itself is scheduled to go on trial in
September on related conspiracy charges, according to the Justice Department.

CDR faces a fine of as much as $100 million, if convicted, the government has said. In a statement on
its website in October 2009, the company said the charges are “without merit and in fact, a total
fiction based on a lack of understanding of the municipal reinvestment market.”
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Restitution Payments

Bank of America agreed to pay $67 million in restitution directly to states from California to
Connecticut, and another $70 million to the SEC, the Internal Revenue Service and the Office of the
Comptroller of the Currency, according to statements from the agencies and states. Varney said the
bank’s agreement covers activity from at least 1997 through 2002. The SEC said the bank neither
admitted nor denied its findings in agreeing to settle a related securities-fraud complaint.

“Bank of America is pleased to put this matter behind it and has already voluntarily undertaken
numerous remediation efforts,” the company said yesterday in a statement.

The bank wasn’t the leader or organizer of the bid-rigging conspiracy, according to the Justice
Department. The bank agreed to pay disgorgement and interest ranging from $8,418 for Missouri’s
development finance agency to $6.2 million for Massachusetts, according to the SEC.

Over the next few months, 20 state Attorneys General and Bank of America will work together to
select an administrator and identify municipalities who may have a claim against the bank, said Jim
Finefrock, a spokesman for Jerry Brown, California’s attorney general and governor-elect.

Those who submit claims release Bank of America from other civil restitution, according to
documents released by Brown’s office.

Eight one-time bankers and financial advisers, including former employees of UBS, JPMorgan and
Bank of America, have pleaded guilty in connection with the municipal bid-rigging probe.

To contact the reporters on this story: Jeff Bliss in Washington at jbliss@bloomberg.net; Martin Z.
Braun in New Y ork at mbraun6@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum in New Y ork at
mtannen@bloomberg.net.

®2010 BLOOMBERG L.P. ALL RIGHTS RESERVED.

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