Banks Busted Ripping-Off Government Agencies, Schools, Non-profits

HARRISBURG – Attorney General Linda Kelly announced a $58.75 million multi-state settlement with Wachovia Bank, along with its successor, Wells Fargo Bank, as part of an ongoing national investigation into bid-rigging and other anti-competitive practices that victimized state agencies, local governments, public school districts and non-profit organizations that were attempting to invest or protect the proceeds of tax exempt bonds.

“This portion of the settlement is expected to return more than $5.3 million directly to Pennsylvania agencies that were victims of this national scheme,” Kelly said. “These municipalities and other agencies believed they had found safe investments, but instead were caught up in a conspiracy to increase profits for large banks, brokers and financial service firms.”

Kelly said these settlements are part of an ongoing national investigation into the marketing and sale of municipal derivative investments, often used by government agencies and non-profit organizations to reinvest the proceeds of tax-exempt bonds until those funds are needed.

Today’s settlement with Wachovia follows similar multi-state agreements that have been reached during the past year with three other major financial institutions, including JP Morgan Chase ($92 million), Union Bank of Switzerland ($90.8 million) and Bank of America ($67 million).

“Numerous financial institutions and brokers have been accused of scheming to rig bids, sharing information or otherwise manipulating the bidding process – causing state, local and non-profit entities to enter into contracts that cost more or earned less than they should have received in a competitive marketplace,” Kelly said.  “These alleged schemes caused state, local and non-profit entities to enter into contracts that cost more or earned less than they should have received in a competitive marketplace.”

Kelly explained that the settlement funds will compensate Pennsylvania victims for their losses, returning the funds they should have received when they initially made their investments.

Investigators have identified approximately 150 Pennsylvania municipalities and agencies believed to have been victimized as part of the scheme involving Wachovia, including the Pennsylvania Turnpike Commission; numerous county governments; the Philadelphia Parking Authority;  several county water, sewer and development authorities; and more than a dozen public school districts.

Anticipated restitution amounts range from several hundred dollars to nearly $400,000, depending on the size of the investment made by the victims. All of the Pennsylvania entities that are eligible to participate in this settlement will be contacted with instruction about how to file a claim.

Kelly said today’s multi-state settlement with Wachovia is part of a coordinated effort that also involves numerous federal agencies, including the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Office of the Comptroller of the Currency (OCC) and the U.S. Department of Justice.

The Pennsylvania portion of the case was handled by Chief Deputy Attorney General James A. Donahue III and Deputy Attorney General Joseph S. Betsko, of the Attorney General’s Antitrust Section.