Tennessee Attorney General Bob Cooper and 26 other attorneys general announced a $58.75 million agreement with Wachovia Bank N.A. and Wells Fargo Bank, N.A. as part of an ongoing nationwide investigation of alleged anticompetitive and fraudulent conduct in the municipal bond derivatives industry.
As part of the multistate agreement, Wachovia has agreed to pay $54.5 million in restitution to affected state agencies, municipalities, school districts and not-for-profit entities nationwide that entered into municipal derivative contracts with Wachovia between 1998 and 2004. In addition, Wachovia agreed to pay a $1.25 million civil penalty and $3 million in fees and costs of the investigation to the participating states. It has not yet been determined how much Tennessee and the other states will receive from the agreement.
Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed. They may also be used to avoid fluctuating interest rates. In April 2008, the multistate working group began investigating allegations that some large financial institutions, including national banks and insurance companies, and brokers, engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.
The ongoing investigation revealed some Wachovia employees colluded with other financial institutions and brokers with whom they had working relationships to secure an unfair advantage over other firms. The defendants are alleged to have rigged bids by submitting non-competitive courtesy bids and submitting fraudulent certifications of compliance to government agencies in addition to other violations of U.S. Treasury regulations.
"We are not finished," Attorney General Cooper said. "We will continue working to ensure there are no financial institutions or brokers benefiting at the expense of taxpayers through anticompetitive activity. We appreciate the cooperation Wachovia has demonstrated in this ongoing matter."
The multistate task force agreement is part of a coordinated global $148 million agreement that Wachovia entered into today. The financial institution also reached agreement with the U.S. Department of Justice's Antitrust Division, the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Internal Revenue Service.