Anticompetitive scheme defrauded state agencies, county governments and non-profits
BALTIMORE (July 7, 2011)—Attorney General Gansler announced today that JP Morgan Chase & Co. (JPMC), will pay $75 million under a multistate settlement for its involvement in a nationwide scheme to rig bids and defraud state agencies, county governments and non-profits in their purchase of municipal bond derivatives. The $75 million is one component of a coordinated global $228 million settlement that JPMC is entering into simultaneously with the United States Department of Justice, the Securities and Exchange Commission, and the Internal Revenue Service.
“With this settlement we’re recovering taxpayer dollars pilfered by means of illegally rigged or tainted municipal contracts,” said Attorney General Gansler. “As a result, Maryland taxpayers and non-profit entities will finally receive compensation. I am committed to prosecuting anticompetitive conduct in the market place.”
The University of Maryland Medical System and Johns Hopkins Hospital are among those expected to receive restitution under the settlement.
JPMC is the third financial institution to settle with the state working group in the ongoing municipal bond derivatives investigation. Maryland and the other states settled with Bank of America for $67 million in December of last year and with UBS for $70 million in May.
Today’s settlements are the result of an ongoing investigation by Maryland and a multistate group that focuses on individuals at JPMC, other major financial institutions and certain brokers in connection with the marketing and sale of municipal bond derivatives, which are typically investment contracts that government bond issuers use to reinvest the proceeds of tax-exempt bond offerings until the funds are needed. The transactions are often awarded after a competitive bidding process or negotiated directly between the financial institution and the issuer.
From approximately the late 1990’s through 2005, JPMC and other financial institutions and brokers rigged bids, received and provided “last looks” on bids and submitted non-competitive “courtesy” bids on these investments. The schemes enriched financial institutions or brokers at the expense of government entities and non-profit entities. As a result of this misconduct, State agencies, county governments and Maryland non-profits entered into contracts at suppressed rates of return on investments or paid higher rates on interest-rate hedging instruments than they would have in a competitive marketplace.
Source: Office of Attorney General Gansler