MONTGOMERY, AL (WSFA) - Alabama Attorney General Luther Strange's office says the a multi-state settlement worth $92 million has been reached with JP Morgan Chase & Co. "as part of an ongoing nationwide investigation of alleged anticompetitive and fraudulent conduct in the municipal bond derivatives industry."
The company is agreeing to pay $65.5 million in restitution to affected state agencies, municipalities, school districts and not-for-profit entities nationwide, according to Strange's office. The company also agreed to pay a $3.5 million civil penalty and $6 million in fees and costs of the investigation to the settling states.
The settlement also provides that J. P. Morgan Chase will pay $17 million in restitution directly to certain other government and not-for-profit entities as part of separate agreements it entered into Friday with the U.S. Securities and Exchange Commission and the Office of the Comptroller of the Currency, Strange said.
It wasn't immediately known how much each state would be paid since the fund to issue repayments has yet to be set up.
"I am pleased that this settlement will make compensation available to Alabama entities that were harmed," said Attorney General Strange. "I appreciate the leadership and diligent work of those involved and commend our Antitrust Chief James Steinwinder for leading Alabama's four -year investigation..." AG Strange said.
The Attorney General's office said this is what sparked the investigation:
In April 2008, the states began investigating allegations that certain large financial institutions, including national banks and insurance companies, and certain brokers and swap advisors, engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.
Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed, or to hedge interest-rate risk.
The investigation, which is still ongoing, revealed collusive and deceptive conduct involving individuals at JPMC and other financial institutions, and certain brokers with whom they had working relationships. The wrongful conduct took the form of bid-rigging, submission of non-competitive courtesy bids and submission of fraudulent certifications of compliance to government agencies, among others, in contravention of U.S. Treasury regulations.
Regardless of the means used to carry out the various schemes, the objective was to enrich the financial institution and/or the broker at the expense of the issuer - - and ultimately taxpayers - - depriving the issuer of a competitive, transparent marketplace. As a result of such wrongful conduct, state, city, local, and not-for-profit entities entered into municipal derivatives contracts on less advantageous terms than they would have otherwise.
Strange's office says similar settlements have already been reached with Bank of America in December of 2010 and with UBS-AG in March of 2011.
INFORMATION SOURCE: Attorney General Luther Strange's Press Office