FOR IMMEDIATE RELEASE
NEWS RELEASE
July 8, 2011
For More Information, contact:
Luther Strange
Joy Patterson (334) 242-7491
Alabama Attorney General
Suzanne Webb (334) 242-7351
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AG ANNOUNCES $92 MILLION MULTI-STATE SETTLEMENT WITH JPMC
OVER ANTICOMPETITIVE MUNICIPAL BOND DERIVATIVES SCHEME
(MONTGOMERY)–Attorney General Luther Strange announced a $92 million
multi-state settlement with JP Morgan Chase & Co. (“JPMC”) as part of an ongoing
nationwide investigation of alleged anticompetitive and fraudulent conduct in the
municipal bond derivatives industry.
As part of the multistate settlement, JPMC has agreed to pay $65.5 million in
restitution to affected state agencies, municipalities, school districts and not-for-profit
entities nationwide that entered into municipal derivative contracts with JPMC between
2001 and 2005. In addition, JPMC agreed to pay a $3.5 million civil penalty and $6
million in fees and costs of the investigation to the settling states.
This settlement creates a fund that will be operated by a claims administrator, as
with previous settlements reached with Bank of America and UBS AG, a multinational
Swiss bank. The claims administrator will notify harmed entities that are eligible to opt-
in to the settlement. Participation in the settlement is not mandatory or binding upon
any party that chooses not to join. The states’ recoveries will not be known with
accuracy until eligibility criteria are verified and eligible entities choose to participate in
the restitution fund.
This settlement is not related and has no impact on current negotiations
involving the Jefferson County sewer system crisis.
The settlement also provides that JPMC will pay $17 million in restitution
directly to certain other government and not-for-profit entities as part of separate
agreements it entered into today with the U.S. Securities and Exchange Commission
and the Office of the Comptroller of the Currency.
The states, SEC and OCC settlements are distinct components of a coordinated
global $228 million settlement that JPMC entered into today. JPMC also reached
agreement with the U.S. Department of Justice’s Antitrust Division, the Internal
Revenue Service and the Federal Reserve Board. JPMC is the third financial institution
to settle with a multistate working group in the ongoing municipal bond derivatives
investigation following Bank of America and UBS AG. To date, the state working
group has obtained settlements worth close to $250 million.
501 Washington Avenue Montgomery, AL 36104 (334) 242-7300
www.ago.alabama.gov Page 2 of 2
“I am pleased that this settlement will make compensation available to Alabama
entities that were harmed,” said Attorney General Strange. “I appreciate the leadership
and diligent work of those involved and commend our Antitrust Chief James
Steinwinder for leading Alabama’s four -year investigation and negotiation of the
settlement on behalf of the State of Alabama. This settlement was reached with the
cooperation of JPMC in our ongoing investigation of bid rigging in municipal bond
derivatives.”
Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest
proceeds of bond sales until the funds are needed, or to hedge interest-rate risk. In
April 2008, the states began investigating allegations that certain large financial
institutions, including national banks and insurance companies, and certain brokers and
swap advisors, engaged in various schemes to rig bids and commit other deceptive,
unfair and fraudulent conduct in the municipal bond derivatives market.
The investigation, which is still ongoing, revealed collusive and deceptive
conduct involving individuals at JPMC and other financial institutions, and certain
brokers with whom they had working relationships. The wrongful conduct took the
form of bid-rigging, submission of non-competitive courtesy bids and submission of
fraudulent certifications of compliance to government agencies, among others, in
contravention of U.S. Treasury regulations.
Regardless of the means used to carry out the various schemes, the objective was
to enrich the financial institution and/or the broker at the expense of the issuer – – and
ultimately taxpayers – – depriving the issuer of a competitive, transparent marketplace.
As a result of such wrongful conduct, state, city, local, and not-for-profit entities entered
into municipal derivatives contracts on less advantageous terms than they would have
otherwise.
Similar settlements were reached previously with Bank of America in December
of 2010 and with UBS-AG in March of 2011.
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