BofA to pay $67M for defrauding governments, nonprofits

Posted December 7, 2010 1:07 p.m. EST

— Bank of America has agreed to pay $3.4 million to North Carolina as part of a $67 million multi-state settlement for its role in a scheme to rig bids and defraud local governments and nonprofits nationwide, Attorney General Roy Cooper said Tuesday.

The settlement resolves allegations that Bank of America defrauded state agencies, cities, towns, school districts and nonprofits that purchased a type of investment called municipal bond derivatives.

Governments and nonprofits use municipal investment derivatives to reinvest the proceeds from tax-exempt bond offerings until the funds are needed or to guard against changes in interest rates, Cooper said. The transactions are often awarded after a competitive bidding process or negotiated directly between the financial institution and the issuer.

Nineteen states alleged that, from 1998 through 2003, Bank of America and other financial institutions and brokers rigged bids and submitted non-competitive courtesy bids on contracts. As a result, governments and nonprofits got artificially low rates of return on the investments or paid higher fees than they should have.

“Bid rigging stifles competition and costs taxpayers and nonprofits millions of dollars,” Cooper said in a statement. “Now, communities and schools across North Carolina that were harmed by this scheme will get money back.”

Buncombe, Guilford, Mecklenburg, New Hanover and Wake counties, the North Carolina Housing Finance Agency, North Carolina State University and the University of North Carolina system will share the $3.4 million settlement.

Bank of America is the only company in the alleged scheme to voluntarily report its wrongdoing, Cooper said. The bank also is paying another $70 million to the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Internal Revenue Service and the Federal Reserve to settle claims in the alleged scheme.

Other states joining North Carolina in the settlement are Alabama, California, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, South Carolina and Texas.

The U.S. Department of Justice, the SEC, the OCC, the IRS and the states are still investigating individuals at Bank of America, other major financial institutions and brokers in connection with the marketing and sale of municipal derivative investments. To date, criminal charges have been filed against seven individuals and one company, and eight others have pleaded guilty.