Muni Rigging Settlement At Bank of America Just the Beginning?

Bank of America’s recent $137 million deal with federal regulators for its alleged role in a nationwide bid-rigging conspiracy for municipal-investment contracts may be the first of many settlements to come. Other major Wall Street institutions also are being investigated in connection to bid rigging of municipal notes and bonds.

BofA’s agreement was with the Securities and Exchange Commission (SEC), the Internal Revenue Service, the Federal Reserve, 20 state attorneys-general and other regulators.

As reported Dec. 8 by Bloomberg, Bank of America has been a willing assistant in the government’s probe of the $2.8 trillion municipal-bond market since at least 2007. For its participation, the bank would receive leniency. As part of the deal, BofA’s been providing documents, e-mails and recordings of phone calls, according to court records of civil suits.

The investigation centers on investment agreements that municipalities enter into with money raised through bond sales. In turn, the investment contracts let them earn a return on the funds until the cash is needed for schools, roads or other public works.

Prosecutors contend that certain bankers received inside information from brokers who handled bidding for the contracts so they could carve up the market. In some cases, bankers admitted paying kickbacks to brokers, according to the Bloomberg article.

Bank of America’s settlement is “likely the tip of the iceberg,” said Andrew Gavil, a law professor at Howard University in Washington, D.C., in the Bloomberg article. Other conspirators may pay much higher penalties, according to Gavil.