On December 8, 2011, various government agencies announced that Wachovia Bank, N.A. has entered into a series of settlements with the SEC, the Department of Justice, the Office of the Comptroller of the Currency, the Internal Revenue Service, and 26 state attorneys general to pay $148 million related the bank’s entry into fraudulent secret arrangements with bidding agents to rig at least 58 municipal bond reinvestment transactions in 25 states and Puerto Rico.
According to the SEC’s Press Release, Wachovia used practices known as "last looks" (where Wachovia secured information from the bidding agents about competing bids) and "set-ups" (where the bidding agent rigged the field in Wachovia’s favor by deliberately obtaining non-winning bids from others, while Wachovia deliberately submitting non-winning bids for others to win different transactions by the same method). The Director of the Division of Enforcement Robert Khuzami described the as "playing an elaborate game of ‘you scratch my back and I’ll scratch yours,’ rather than engaging in legitimate competition to win municipalities’ business."
As part of the settlement with the SEC, Wachovia agreed to a final judgment permanently enjoining it from future violations of 1933 Securities Act § 17 and agreed to pay a penalty of $25 million and disgorgement of $13,802,984, with prejudgment interest of $7,275,607 to be returned to affected municipalities or conduit borrowers. The settlement is subject to court approval.
Wachovia entered into non-prosecution agreement with the Department of Justice, accepting responsibility for the illegal conduct of its former employees. According to the DOJ’s Press Release, an ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation (with 9 of those 18 having pled guilty).
The Office of the Comptroller of the Currency announced today that it has "assessed a civil money penalty of $20 million" against Wells Fargo Bank, N.A. (the successor to Wachovia and First Union National Bank), and "required it to pay more than $14.5 million in restitution" for the involvement of the predecessor banks in the bid rigging scheme. The OCC’s agreement with the bank "requires it to implement a detailed plan to enhance and strengthen its policies, procedures, and internal controls related to competitively bid transactions."
According to the SEC, "[f]inancial institutions have now paid a total of $673 million in settlements resulting from the ongoing investigations into corruption in the municipal reinvestment industry," including J.P. Morgan Securities LLC (a $228 million settlement in July 2011), UBS Financial Services Inc. (a $160 million settlement in May 2011), and Banc of America Securities LLC (a $137 million settlement in December 2010).
