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TRENTON
– The Attorney General’s Office
announced today that JP Morgan Chase &
Co. will pay municipal bond issuers in New
Jersey approximately $1.3 million in restitution
as part of a $92 million, national settlement
related to alleged anti-competitive and
fraudulent conduct in the municipal bond
derivatives industry.
As
part of the multi-state settlement, JP Morgan
will pay a total of $65.5 million in restitution
to state agencies, non-profits, municipalities
and school districts that entered into municipal
derivative contracts with the company between
2001 and 2005 in New Jersey and across the
nation.
In
addition, JP Morgan has agreed to pay a
$3.5 million civil penalty and $6 million
in fees and costs of the investigation to
the 25 settling states.
The
settlement also provides that JP Morgan
will pay $17 million in restitution directly
to certain other government and not-for-profit
entities as part of separate agreements
it entered into today with the U.S. Securities
and Exchange Commission (SEC) and the Office
of the Comptroller of the Currency (OCC).
The
multi-state settlement, the SEC settlement
and the OCC agreement are three distinct
components of a coordinated, global $228
million settlement that JP Morgan entered
into today. The company also reached agreement
with the U.S. Department of Justice’s
Antitrust Division, the Internal Revenue
Service and the Federal Reserve Board.
JP Morgan is the third financial institution
to settle with the multi-state working group
in the ongoing municipal bond derivatives
investigation. Previously, Bank of America
and UBS AG entered into separate settlements
with New Jersey and the other states. Together,
the three agreements comprise dollar settlements
totaling nearly $250 million, and eligible
municipal bond issuers in New Jersey are
expected to receive a total of approximately
$7.5 million in restitution.
Municipal
bond derivatives are contracts that tax-exempt
issuers use to reinvest proceeds of bond
sales until the funds are needed, or to
hedge interest-rate risk.
In
April 2008, the states began investigating
allegations that certain large financial
institutions, including national banks and
insurance companies, as well as certain
brokers and swap advisors, had engaged in
various schemes to rig bids and commit other
deceptive, unfair and fraudulent conduct
in the municipal bond derivatives market.
The
investigation, which is continuing, revealed
collusive and deceptive conduct involving
individuals at JP Morgan and other financial
institutions, and certain brokers with whom
they had working relationships. The wrongful
conduct took the form of bid-rigging, submission
of non-competitive courtesy bids and submission
of fraudulent certifications of compliance
to government agencies, among others, in
contravention of U.S. Treasury regulations.
Regardless
of the means used to carry out the various
schemes, the objective was to enrich the
financial institution and/or the broker
at the expense of the issuer – and
ultimately taxpayers – depriving the
issuer of a competitive, transparent marketplace.
As a result of such wrongful conduct, state,
city, local and not-for-profit agencies
entered into municipal derivatives contracts
on less advantageous terms than they would
have otherwise.
Deputy Attorney General Joshua T. Rabinowitz,
Deputy Attorney General Isabella T. Stempler,
Deputy Attorney General Toral M. Joshi,
Assistant Attorney General Brian F. McDonough,
and Assistant Attorney General Carol Jacobson
handled the matter on behalf of the state.
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