WASHINGTON – West Virginia's attorney general has reached settlements totaling $1.28 million with four firms in a lawsuit that alleged they engaged in bid rigging and price fixing for municipal investments, the latest action in federal and state investigations of bid rigging in the muni market that stretch back more than ten years.
The four firms with whom West Virginia's attorney general reached agreements include UBS AG, Natixis Funding Corp., and Municipal Bond Insurance Association. Assured Guaranty Municipal Corp., formerly known as Financial Security Assurance Inc., was also named as a defendant in the litigation but it is indemnified by Dexia SA and Dexia Crédit Local S.A., which owned Financial Security Assurance at the time of the activities that were the subject of the litigation. Dexia negotiated the settlement and paid the settlement amount. Assured Guaranty entities did not contribute to the settlement payment. The firms denied attorney general Patrick Morrisey's claims and allegations of wrongdoing under the settlements.
"This settlement assists those cities and agencies impacted by these unscrupulous practices, while also enforcing state's consumer protections laws," Morrisey said in a statement. "These entities must be able to continue their work without the fear of someone taking advantage of them."
Municipalities, school districts, and nonprofit organizations that issue munis usually invest the proceeds not immediately needed, often with the help of dealers or investment advisory firms that provide investment products such as guaranteed investment contracts.
The Justice Department's antitrust division in November 2006 announced it was investigating anticompetitive and fraudulent conduct in the muni market. Broker-dealers and investment product providers had allegedly rigged the bidding process for investment products so that issuers did not necessarily get the best prices for them.
State attorneys general and trial lawyers also filed suits seeking relief for issuers and borrowers. West Virginia's four settlements follow the finalizing last month of a combined $103.35 million of bid-rigging settlements with six broker-dealer and investment provider firms stemming from an issuer class action lawsuit. The class action suit was the result of a coordinated effort by 22 attorneys general along with the city of Baltimore and the Central Bucks School District in Pennsylvania, which were lead plaintiffs in the suit, which included numerous issuers.
The six settlements were proposed in preliminary form in late February and were approved last month after Judge Victor Marrero, who sits on the U.S. District Court for the Southern District of New York in Manhattan, held a hearing to determine the fairness of their provisions.
Of the six firms whose settlements were finalized in July, UBS agreed to pay the most – $32 million. Natixis and French multinational company Societe Generale agreed to pay about $30 million and $26.75 million, respectively, with $28.45 million and $25.41 million of those amounts went to issuers and borrowers in the class while the rest was for costs like attorneys' fees.
The remaining three firms involved in the class action litigation were Piper Jaffray & Co., which paid $9.75 million, National Westminster Bank, paying $3.5 million, and George K. Baum & Co., which paid $1.4 million.
The six settlements represented the final part of the class action litigation. However, the litigation over bid rigging is ongoing because some government entities, like West Virginia, had chosen to pursue legal action against firms outside of the class action suits and some of those proceedings have not yet concluded.
The six final settlements follow five prior ones that also resulted from the class action and totaled $125 million. JPMorgan Chase paid $44.58 million, the most of the firms in the five prior settlements. The four other firms that settled include Morgan Stanley, GE Funding Capital Market Services Inc., Bank of America, now Bank of America Merrill Lynch, and Wachovia Bank, which is now Wells Fargo & Co.
The federal investigations involved, besides DOJ, the Federal Bureau of Investigation, the Internal Revenue Service's criminal division, and the Securities and Exchange Commission.
In November 2006, the U.S. Marshals, helping with the investigations, raided the offices of at least two GIC brokers, CDR Financial Products, in Beverly Hills, Calif. and Investment Management Advisory Group, Inc. in Pottstown, Pa.
After that, several broker-dealers and muni investment providers, as well as their employees, began receiving subpoenas requesting documents and other information. Eventually, the attorneys general joined the probes and lawyers in private practice filed class action suits on behalf of issuers.
The investigations led to numerous lawsuits and enforcement actions by issuers, attorneys general, and federal regulators against the firms and individuals. Bank of America, UBS, JPMorgan, Wachovia, and GE previously agreed to pay a total of more than $740 million as a result of the Justice Department investigations, according to documents.
Additionally, at least 17 individuals associated with the broker-dealers and investment providers were either convicted or pleaded guilty as a result of the DOJ investigations, the records show.
