JPMorgan to Pay $228 Million to Settle Muni Bid-Rigging Allegations by SEC
By William Selway and Martin Z. Braun - Jul 7, 2011 2:21 PM PT
JPMorgan Chase & Co. (JPM) agreed to a $228 million settlement on charges it conspired to rig the bidding on investment contracts sold to state and local governments to boost its profits at taxpayer expense.
The agreement ends investigations of the second-largest U.S. bank by the Justice Department, the Securities and Exchange Commission and the attorneys general of 25 states including the District of Columbia, the Justice Department and SEC said today.
Federal investigators have probed for more than four years how banks and financial advisers fixed bids on investment contracts to let them pay governments below-market rates. JPMorgan?s penalties are the largest yet to result from that investigation, which also led to settlements with UBS AG (UBSN) and Bank of America Corp. (BAC), the biggest U.S. bank by assets.
JPMorgan ?improperly won bids by entering into secret arrangements with bidding agents to get an illegal ?last look? at competitors? bids,? Robert Khuzami, director of the SEC?s enforcement division, said in a statement. ?Municipal issuers and investors didn?t stand a chance against the fraudulent strategies,? he said.
Criminal charges have been brought against 18 finance- industry employees in the past two years, nine of whom have pleaded guilty, including James Hertz, a former JPMorgan banker. Hertz is one of five former workers at the bank who received letters informing them that they are targets of the Justice Department probe, according to regulatory filings.
Court documents filed by prosecutors point to wide-ranging collusion by Wall Street banks, insurance companies and advisers hired by public officials to guide their investments. Papers entered in a case against CDR Financial Products Inc., an advisory firm based in Los Angeles, identified more than a dozen banks and insurers as co-conspirators.
The accord marks the second for JPMorgan arising from its municipal-derivatives business, which sold the investment contracts as well as interest-rate swaps to state and local governments, before the bank shut it down in 2008. In November 2009, the bank entered a $722 million accord with the SEC to end a separate investigation over its sales of derivatives to Jefferson County, Alabama, where its bankers made undisclosed payments to friends of county commissioners to win business.
As part of today?s settlement, JPMorgan took responsibility for ?illegal, anticompetitive conduct by its former employees,? the Justice Department said. The SEC said the bank neither admitted nor denied claims in the agency?s complaint.
The accord includes $92 million for the states and the district, $35 million for the U.S. Office of the Comptroller of the Currency, $51.2 million for the SEC and $50 million for the Internal Revenue Service. The agreement with the states provides for $17 million of payments in connection with the federal settlement. JPMorgan said the deal will lead to $211.2 million in net payments.
The bank ?doesn?t tolerate anticompetitive activity or other violations of law,? JPMorgan said in the statement. ?The firm assisted the government agencies in their investigations and is pleased to have resolved this matter with its regulators,? the bank said.
JPMorgan has increased the number of legal and compliance staff in its public-finance division and raised the level of auditing, said Jennifer Zuccarelli, a spokeswoman. The bank also has increased antitrust, ethics and other training, she said.
I'll believe corporations are persons when Texas executes one.: LBJ's Ghost