Wednesday, December 8, 2010

Bank of America Settles. Again.

Christine Varney: "Stay tuned..."

$137 million sounds like a lot of money, but for Bank of America it is just a cost of doing business. Yesterday it was announced by Assistant Attorney General Christine Varney of the U.S. Department of Justice that BofA had bought a settlement against charges that the company participated in a nationwide bid-rigging conspiracy for municipal-bond investment contracts. A little over half of the settlement will go to such federal agencies as the Securities Exchange Commission and the Internal Revenue Service, while $67 million will be divvied up by the 20 states injured.

When states and municipalities are sitting on the idle proceeds of bond offerings, they will often park the money in guaranteed investment contracts until the money is actually deployed for the intended projects. That way the money generates a return until it is used. It turns out that auctions for the management rights to this money were rigged, with bidding agents steering the business to certain managers in return for kickbacks. The kickbacks ultimately came out of the hides of the states and municipalities, who received inferior interest rates.

Bloomberg reports that the probe is not over. There were other firms involved (BofA was not the ringleader, according to the DOJ), and there will be more settlements and judgments to come. "We are committed to getting restitution, full restitution," promised Varney, "to all the municipalities that were victims of this scheme." BofA will suffer no additional penalties in this case in consideration for its cooperation in the investigation.

Earlier this year BofA reached a $150 million settlement with the SEC over allegations that it had withheld material information from shareholders at a meeting in December 2008 to approve its merger with Merrill Lynch. A hundred million here, a hundred million there, and pretty soon you're talking about real money. What does that say about a company whose top claim to management prowess is the ability to extract leniency and immunity from federal and state investigators for past indiscretions?

Still want to own this bank?

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