JPMorgan agrees to $228m settlement
July 8, 2011 -- Updated 0423 GMT (1223 HKT)
The JPMorgan Chase logo is displayed outside the company's Chase Tower office building on July 15, 2010 in Chicago, Illinois.
STORY HIGHLIGHTS
- The settlement is the largest to date in the ongoing probe by the DoJ
- JPMorgan said the investigation focused on a small group of employees who are no longer with the firm
- JPMorgan will not be prosecuted for bid rigging provided that it satisfies its obligation under the agreement
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(FT) -- JPMorgan Chase has agreed to pay $228m to settle allegations brought by state and federal officials that it made municipalities pay more for management of their bond issuance proceeds by rigging the tender process for the business, according to the US Department of Justice.
The settlement is the largest to date in the ongoing probe by the DoJ and various other state and federal agencies. In December, Bank of America agreed to pay $137m to settle similar claims, followed in May by UBS, which agreed to pay $160m.
In addition to the banks, 18 individuals have been charged, including James Hertz, a former JPMorgan employee. Nine of the 18 have pleaded guilty, including Mr Hertz, the DoJ said.
JPMorgan said it had agreed to pay $211.2m, net of a $17m credit to the Securities and Exchange Commission and the Office of the Comptroller of the Currency. The money will be divided among 24 state attorneys-general -- including Connecticut, New York, Illinois and Texas -- the Internal Revenue Service, SEC and OCC.
The majority of the settlement, or about $129.7m, will go to municipalities and other tax-exempt issuers, JPMorgan said.
As part of the agreement with the DoJ, JPMorgan acknowledged and took responsibility for illegal and anticompetitive conduct by former employees that occurred before 2006. The bank discontinued its municipal derivatives desk in 2008.
The DoJ agreed not to prosecute JPMorgan for bid rigging provided that it satisfies its obligation under the agreement, including continued co-operation with the DoJ's investigation, which is being handled by the antitrust division.
JPMorgan said the investigation focused on a small group of employees who concealed their behaviour from management and are no longer with the firm. The bank said it had since increased its surveillance and strengthened its antitrust and ethics training.
JPMorgan also said that the settlement amount was not expected to have any material impact on earnings.
When municipalities raise money by selling bonds, they typically reinvest the proceeds until they are used for their intended purpose, which could range from the building of new toll roads to bridges and airports.
Under IRS rules, in order for the proceeds to retain their tax-exempt status, they must be reinvested at fair market value. The most common way of establishing fair market value is through a competitive bidding process.
The SEC complaint alleges that JPMorgan undermined the competitive bidding process in at least 93 municipal bond reinvestment transactions in 31 states. In some instances, JPMorgan won bids because it obtained information from the bidding agents about competing offers, a practice known as "last looks", the SEC said. At other times, the SEC said, the bank won bids set up in advance, because the bidding agent deliberately obtained sub par offers from other bidders, a process known as "set ups".
The Connecticut Housing Finance Authority, Fairfield University, the towns of Fairfield, Stratford and Weston, Yale University and the South Central Connecticut Regional Water Authority are among
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