December 10th, 2010 6:00 PM by Lehel S.
Highlighting a low-profile strain of alleged Wall Street misconduct, Bank of America Corp. has agreed to pay $137 million to settle charges that it was part of a wide-ranging scheme to pay states, cities and school districts artificially low interest rates on their investments.
Bank of America, the nation's largest financial company, paid kickbacks and colluded with rivals to share investment business from municipalities without paying market rates, according to settlement papers filed Tuesday.
The Charlotte, N.C., financial giant is the first bank to face government charges in a continuing investigation that authorities described as the biggest ever in the $400-billion-a-year municipal bond market. Prosecutors indicated Tuesday that other firms were likely to get hauled into court.
"It's a telling enforcement action that a major institution was involved in the bid rigging," said Bartley Hildreth, an expert in municipal finance at Georgia State University.
The company agreed to pay $67 million to the 20 states and $36 million to the Securities and Exchange Commission. Both amounts will be divided among the affected government agencies. BofA also agreed to make payments to the Internal Revenue Service and the Office of the Comptroller of the Currency, a federal bank regulator.
Among the alleged victims were the Pomona Unified School District, which will get $126,000 in the settlement, and Santa Barbara County, which will receive nearly $200,000.
The bank broke the law in 88 different deals from 1998 to 2002, according to the SEC. A single desk at BofA's New York-based investment bank was responsible for the transactions.
Bank of America alerted authorities to the desk's conduct in 2004 and then cooperated with investigators in exchange for leniency for the company itself, including immunity from federal criminal prosecution.
In a statement, the bank stressed that it reported the situation as soon as top executives became aware of it and took "appropriate personnel actions and other measures to ensure that these or similar practices would not occur again."
Employees at a number of big banks have already pleaded guilty in the investigation, including one Bank of America employee, Douglas Campbell.
When Campbell entered his plea in September, he said he had paid kickbacks to Beverly Hills-based CDR Financial Products Inc. to secure investment work from municipalities.
Local agencies employed firms such as CDR to collect bids from banks to invest the proceeds of bond sales until the money was spent on public projects.
BofA paid kickbacks to those middleman firms to coordinate the bidding with other banks so that they all could all pay lower interest rates, according to the SEC.
"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," Robert Khuzami, the SEC's head of enforcement, said in a statement issued by the agency.
Four former CDR employees pleaded guilty to federal criminal charges early this year as part of agreements with prosecutors.
CDR, two other employees and its founder, David Rubin, were indicted in October 2009 and have pleaded not guilty. Neither a company representative nor Rubin could be reached for comment Tuesday.