Corbett Announces Settlement with Bank of America, Accused of Defrauding State Agencies and School Districts

Attorney General Corbett announces $67 million multi-state settlement with Bank of America over bid-rigging scheme

HARRISBURG – Attorney General Tom Corbett today announced that Bank of America will pay $67 million as part of a multistate settlement concerning a nationwide scheme to rig bids and other anticompetitive conduct that defrauded state agencies, municipalities, school districts and non-profit organizations.

Corbett noted that the multistate settlement is a component in an overall settlement involving Bank of America, the states, and several federal agencies – including the Securities and Exchange Commission (“SEC”), the Office of the Comptroller of the Currency (“OCC”), the Internal Revenue Service (“IRS”) and the Federal Reserve.

“This settlement is expected to return nearly $4 million to dozens of public school districts across Pennsylvania, along with numerous cities, boroughs, townships, county governments and municipal authorities,” Corbett said. “All of these agencies were allegedly victimized by the illegal schemes involving Bank of America, which artificially increased their investment costs and reduced their rate of return.”

Corbett said today’s global settlements are the result of a broad and ongoing national investigation.  The probe has focused on the marketing and sale of municipal derivative investments – which are often used by government agencies and non-profit organizations to reinvest the proceeds of tax-exempt bond offerings until those funds are needed.

Bank of America was the first and only entity in the scheme that voluntarily self-reported the wrongdoing to the U.S. Department of Justice (DOJ).  Under the DOJ’s Corporate Leniency Program, Bank of America was granted conditional leniency based on its acknowledgement of wrongdoing, significant cooperation and the payment of restitution.  To date the DOJ has brought criminal actions against seven individuals and one company and has obtained guilty pleas against eight others involved in these schemes.

“Municipal governments and school systems across Pennsylvania believed they were doing the right thing – making investments to earn additional money for their citizens,” Corbett said.  “In reality, they were victimized by complex schemes to rig bids and avoid competition, designed to generate additional profits for Bank of America and the other co-conspirators.”

According to the settlement agreement, between 1998 and 2003 Bank of America along with other financial institutions and brokers allegedly rigged bids, received and provided “last looks” on bids and submitted non-competitive “courtesy” bids on investments. The alleged schemes enriched financial institutions or brokers – 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.

Corbett said the investigation identified more than 100 Pennsylvania entities that may be eligible for restitution, including: Berks, Chester, Lebanon, Lehigh, Luzerne, Montgomery, Northumberland and Washington counties; the Pennsylvania Turnpike Commission;  the Philadelphia and Pittsburgh International Airports; the Southeastern Pennsylvania Transportation Authority (SEPTA); the cities of Philadelphia, Allentown and York; Parking Authorities in Philadelphia, Erie and Harrisburg; Redevelopment Authorities for Allegheny County and the City of Harrisburg; Lackawanna County Stadium; Butler County Community College; the Sports & Exhibition Authority of Pittsburgh & Allegheny County; Municipal Authorities for Westmoreland County and the Borough of Lewistown; the Harrisburg Authority; the Bethlehem Authority; and more than 30 school districts across the state.

Corbett said that all of the Pennsylvania entities that are eligible to participate in this settlement will be contacted with instruction about how to file a claim.

The multi-state settlement with Bank of America includes Alabama, California, Connecticut, Florida, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina and Texas.