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

Bank of America plans to begin testing new bank offerings in December.Mario Tama/Getty Images Bank of America plans to begin testing new bank offerings in December.

Bank of America agreed on Tuesday to pay federal and state authorities $137 million to settle charges that its securities group helped rig bids on municipal bond contracts, according to 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.

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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