FOR IMMEDIATE RELEASE
NEWS RELEASE
December 27, 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 STRANGE ANNOUNCES $34.25 MILLION MULTISTATE SETTLEMENT
WITH GE FUNDING OVER MUNICIPAL BOND DERIVATIVES SCHEME
(MONTGOMERY)–Attorney General Luther Strange announced a $34.25
million settlement with GE Funding Capital Market Services, Inc. (“GE
Funding”) as part of an ongoing nationwide investigation of alleged illegal
conduct in the municipal bond derivatives industry.
As part of the multistate settlement, GE Funding has agreed to pay $30
million in restitution to affected state agencies, municipalities, school districts
and not-for-profit entities nationwide that entered into guaranteed investment
contracts with GE Funding and two of its affiliates – Trinity Funding Company,
LLC and Trinity Plus Funding Company, LLC – between 1999 and 2005. In
addition, GE Funding agreed to pay a $1.25 million civil penalty and $3 million
for fees and costs of the investigation to the settling states.
The states’ investigation developed evidence that certain traders at GE
Funding, in concert with certain brokers, engaged in conduct that allowed the
broker to determine in advance that GE Funding would win a bid for a
guaranteed investment contract by allowing GE Funding to receive a “last look’
and arranging for other financial institutions to submit purposely non-winning
courtesy bids. On many occasions, due to the “last look”, GE Funding was
able to lower its bid to the issuer and still win the transaction.
The multistate settlement is a distinct component of a coordinated global
$70 million settlement that GE Funding entered into today. As a part of this
global settlement, GE Funding also reached agreement with the U.S. Securities
and Exchange Commission, the U.S. Department of Justice’s Antitrust Division
and the Internal Revenue Service. GE Funding is the fifth financial institution
to settle with the multistate working group in the ongoing municipal bond
derivatives investigation following Bank of America, UBS AG, JP Morgan and
Wachovia. To date, the state working group has obtained settlements worth
almost $350 million.
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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 GE Funding’s
cooperation in our ongoing investigation of bid rigging and Antitrust abuses of
the municipal bond derivatives market.
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 states’ broader investigation, which is still ongoing, has revealed
wrongful and deceptive conduct coordinated among individuals at a number of
financial institutions, and certain brokers with whom they had working
relationships. The wrongful conduct took the form of improper communications
among competitors, submission of non-competitive courtesy bids, allowing
financial institutions improper access to confidential bidding information,
payment of improper fees to brokers to steer business 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.
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