– Attorney General Paula T. Dow announced
today a $58.75 million settlement between
a multi-state task force and Wachovia Bank
and its successor, Wells Fargo Bank, as
part of an ongoing national investigation
of alleged anti-competitive and fraudulent
conduct in the municipal bond derivatives
the settlement, Wachovia will pay municipal
bond issuers in New Jersey upwards of $2
million in restitution, according to preliminary
Wachovia has agreed to pay a total of $54.5
million in restitution to affected state
agencies, municipalities, school districts
and not-for-profit entities that entered
into municipal derivative contracts with
Wachovia between 1998 and 2004 and are eligible
to participate in the settlement.
addition, Wachovia has agreed to pay a $1.25
million civil penalty and $3 million for
fees and costs of the investigation to the
26 settling states.
multi-state task force settlement is part
of a coordinated global $148 million settlement
that Wachovia entered into today. Wachovia
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.
is the fourth financial institution to settle
with the multi-state task force in the ongoing
municipal bond derivatives investigation.
The others are Bank of America, UBS AG and
JP Morgan. To date, the multi-state task
force has obtained settlements worth more
than $300 million.
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,
and certain brokers and swap advisors, engaged
in various schemes to rig bids and commit
other deceptive, unfair and fraudulent conduct
in the municipal bond derivatives market.
investigation, which remains ongoing, revealed
collusive and deceptive conduct involving
individuals at Wachovia 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.
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 entities entered into
municipal derivatives contracts on less
advantageous terms than they otherwise would
addition to New Jersey, other Attorneys
General joining the settlement are: Alabama,
California, Colorado, Connecticut, District
of Columbia, Florida, Idaho, Illinois, Kansas,
Maryland, Massachusetts, Michigan, Missouri,
Montana, Nevada, New York, North Carolina,
Ohio, Oregon, Pennsylvania, South Carolina,
Texas, Tennessee and Wisconsin.
Deputy Attorney General Joshua T. Rabinowitz,
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.