Bond broker to pay NC $25,000 in restitution
Posted July 28, 2011 4:39 p.m. EDT
Raleigh, N.C. — Bond broker Martin Kanefsky will pay a total of $250,000 as part of a multi-state settlement with North Carolina and 24 other states to resolve claims that he participated in a scheme to defraud state and local governments, Attorney General Roy Cooper said Thursday.
As part of the settlement, Kanefsky will pay $25,749 in restitution to the N.C. Housing Finance Authority, which provides affordable housing opportunities for North Carolinians.
“State and local governments and ultimately taxpayers lose out because of schemes like this,” Cooper said.
This is the fourth settlement reached in the past year as part of an ongoing multi-state investigation of alleged bid rigging in the municipal bond derivatives industry.
Governments and non-profits use municipal investment derivatives to reinvest the proceeds from tax-exempt bond offerings until the funds are needed or to guard against fluctuating interest rates. To date, Cooper and other state attorneys general have obtained settlements of approximately $250 million related to the investigation, according to Cooper's office.
Under the settlement announced Thursday, Kanefsky has agreed to pay restitution to affected state agencies and municipalities in nine states that entered into municipal derivative contracts for which he acted as a broker between 2001 and 2006. At the time, Kanefsky was chief executive officer of now-defunct Kane Capital Strategies Inc.
In his role as broker, Kanefsky solicited and received intentionally losing bids for certain investment agreements and gave major financial institutions "last looks" – an opportunity to see competitors' bids before giving their own final bid, according to Cooper. The practice is prohibited by U.S. Treasury regulations and keeps the bidding process from being fair.
Kanefsky is the first broker to settle with the states and he has agreed to cooperate with the ongoing investigation. He also pleaded guilty on Aug. 12 to federal criminal charges in connection with the case, admitting to two counts of conspiracy and one count of wire fraud.
Cooper’s office previously reached related settlements with Bank of America, UBS and JP Morgan Chase.
Earlier this month, JP Morgan Chase agreed to pay $126,326 to Charlotte, Wake County and North Carolina State University as part of a $92 million multi-state settlement.
In May, UBS agreed to pay $252,995 to entities in North Carolina as part of a $90.8 million multi-state settlement.
In December, Bank of America agreed to pay $3.4 million to North Carolina local governments, schools and non-profits as part of a $67 million multi-state settlement.
In April 2008, North Carolina and other states began investigating allegations that some banks, insurance companies, brokers and swap advisors had engaged in deceptive and fraudulent conduct in the municipal bond derivatives market.
The investigation has so far revealed that brokers and financial institutions illegally enriched themselves at the expense of state agencies, towns, cities, school districts, non-profits and the taxpayers who fund them. As a result, governments and non-profits got artificially low rates of return on their investments or paid higher rates than they should have.
“The bidding process doesn’t work without fair dealing and honest competition,” Cooper said. “We want to see others involved in the scheme come forward and do the right thing by cooperating with our ongoing investigation.”