SEC Charges BofA With Setting Up Fake Bids To Defraud Munis

The SEC has charged Banc of America with fraud for rigging municipal bond sales with dummy bids, defrauding hospitals, schools, and other state-run organizations. The bank will pay $137 million to settle these charges.

“The conduct was egregious,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “In return for business, the company repeatedly paid undisclosed gratuitous payments and kickbacks and affirmatively misrepresented that the bidding process was proper.”

When municipal bonds are bought by investors, municipalities usually invest the money for a short time before it gets used. By law, the decision about where to reinvest is supposed to go through a competitive bidding process. But Banc of America Securities (BAS) is charged with setting up sockpuppets to make purposely losing bids and steer the business back to BAS products. In return, BAS helped these other companies out by doing the same for them, as well as giving them “gratuitous payments.”

Elaine C. Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit, said, “This conduct threatened the integrity of the municipal marketplace, affecting not only the municipal issuers who were directly defrauded, but also the thousands of investors nationwide who purchased their tax-exempt municipal securities.”

Bank of America got some leniency in the deal because it disclosed the information itself to the government that launched the investigation. As such, it will not have to pay an additional financial penalty on top of the remuneration.

“Bank of America is pleased to put this matter behind it and has already voluntarily undertaken numerous remediation efforts,” said the company in a statement.

SEC Charges Banc of America Securities With Fraud in Connection With Improper Bidding Practices Involving Investment of Proceeds of Municipal Securities [SEC.gov]
ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, PURSUANT TO SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER (PDF)
Bank of America (BAC) Agrees to Pay $137M to Settle Muni Cases [StreetInsider]