JPMorgan Reaches $228 Million Bond Rigging Settlement
The Securities and Exchange Commission on Thursday said J.P. Morgan (NYSE: JPM) has agreed to pay $228 million to settle allegations of rigging municipal bond deals.
As part of the settlement, J.P. Morgan will return about $51.2 million to municipalities and borrowers affected by the fraud, according to a statement released by the SEC. In addition, J.P. Morgan has agreed to pay an additional $177 million to settle similar charges brought by other federal and state authorities.
The SEC said the charges stem from at least 93 municipal bond reinvestment transactions in 31 states which generated millions of dollars in ill-gotten gains for a small unit of the investment banking giant.
According to the SEC, J.P. Morgan improperly won municipal bond contracts by entering into secret arrangements with bidding agents that allowed the bank to get illegal last looks at the bids of their competitors.
Municipal issuers and investors didn't stand a chance against the fraudulent strategies (J.P. Morgan) and others used to guarantee profits," Robert Khuzami, director of the SECs Division of Enforcement, said in a statement.
The SEC said the fraud occurred during a seven year period from 1997 to 2005. According to a complaint filed in federal court in New Jersey, J.P. Morgan won bids because it obtained information from bidding agents about competing bids, an illegal practice known as last looks.
Furthermore, J.P. Morgan allegedly won bids it couldnt lose because bidding agents deliberately obtained non-winning bids from other providers, according to the SEC.
J.P. Morgan neither admitted nor denied the charges. A spokesman for the bank didnt immediately respond to a request for comment.
In a related action, the SEC barred a former J.P. Morgan vice president and marketer named James L. Hertz from participating in numerous types of securities transactions. Hertz pled guilty in 2010 to two counts of conspiracy and one count of wire fraud related to the competitive bidding fraud. The SEC said Hertz cooperated in its investigation.
The SEC noted that it has reached two earlier settlements on related charges with UBS (NYSE: UBS) and Bank of America (NYSE: BAC).
The SEC said the investigation is ongoing.