GE Settles Muni-Bond Bid Rigging Probe

December 26, 2011, 6:39 PM EST By Martin Z. Braun

(Updates with number of transactions in 11th paragraph.)

Dec. 23 (Bloomberg) -- General Electric Co. agreed to pay $70.4 million to settle a criminal probe and civil claims for conspiring to rig bids on U.S. municipal-bond deals, overcharging state and local governments on investments.

GE Funding Capital Market Services, a former unit, is the fifth company to settle in a more than five-year federal investigation. The deal will resolve probes by the Justice Department, the Securities and Exchange Commission and the Internal Revenue Service as well as attorneys general in 25 states, the Justice Department said today in a statement.

“GE Funding’s former traders entered into illegal agreements to manipulate the bidding process on municipal investment contracts,” said Sharis A. Pozen, acting assistant attorney general in charge of the Justice Department’s antitrust division. “This anticompetitive conduct harmed municipalities as well as taxpayers.”

The settlement will bring to $743 million the amount that banks have paid to end the case, some of which is being returned to localities that were overcharged, the SEC said in a news release. Bank of America Corp., JPMorgan Chase & Co., UBS AG and Wells Fargo & Co. previously settled similar cases.

1999 to 2004

GE’s settlement stems from an investigation that centered on three now-former employees at a unit the finance division discontinued in April 2010, the Fairfield, Connecticut-based company said in a statement today. The conduct took place between 1999 and 2004, GE said.

The settlement won’t have a “material impact” on earnings, according to GE, the world’s biggest maker of jet engines and power-generation equipment. It takes about $100 million in profit to yield 1 cent in per-share earnings at GE, whose operations span energy, aviation, health care, transportation and financial services.

The Justice Department said it agreed not to prosecute GE Funding because it admitted its illegal conduct, cooperated with the investigation and took steps to address anticompetitive conduct. The department also cited GE Funding’s commitment to make restitution.

‘Widespread Corruption’

The federal investigation has exposed “widespread corruption” in a segment of the municipal market that deals with the investment of proceeds from bond issues, the SEC said. States and local governments purchase investment contracts, allowing them to earn a return until the cash is needed for public-works projects.

The contracts were supposed to be awarded to banks that offered the highest return at competitive auctions arranged by financial advisers.

So far, the Justice Department said it has brought criminal charges against 18 former executives of financial-services firms, nine of whom have pleaded guilty. The department said it is continuing to investigate.

The SEC said GE Funding generated millions of dollars by rigging at least 328 transactions in 44 states and Puerto Rico. The firm won deals by getting information about competitors’ bids from brokers that handled the auctions. It either raised a losing bid to a winning bid or reduced its winning bid to a lower amount so that it could make more money on a transaction, the SEC said.

GE Funding also deliberately submitted losing bids allowing other pre-selected firms to win auctions, the SEC said.

In July 2010, three former GE Funding bankers, Dominick Carollo, Steven Goldberg and Peter Grimm, were charged with fraud and conspiracy. They have pleaded not guilty.

The bankers allegedly paid kickbacks to brokers in exchange for their help in controlling and manipulating the bidding process. The kickbacks were then disguised as fees on derivative transactions.

One of the brokers, CDR Financial Products Inc., its founder and two former executives are scheduled to go on trial next month in federal court in Manhattan.

--With assistance from Rachel Layne in Boston and William Selway in Washington. Editors: Stacie Servetah, Mark Schoifet

To contact the reporters on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

View the original article here

GE Settles Muni-Bond Bid Rigging Probe

December 25, 2011, 8:50 PM EST By Martin Z. Braun

(Updates with number of transactions in 11th paragraph.)

Dec. 23 (Bloomberg) -- General Electric Co. agreed to pay $70.4 million to settle a criminal probe and civil claims for conspiring to rig bids on U.S. municipal-bond deals, overcharging state and local governments on investments.

GE Funding Capital Market Services, a former unit, is the fifth company to settle in a more than five-year federal investigation. The deal will resolve probes by the Justice Department, the Securities and Exchange Commission and the Internal Revenue Service as well as attorneys general in 25 states, the Justice Department said today in a statement.

“GE Funding’s former traders entered into illegal agreements to manipulate the bidding process on municipal investment contracts,” said Sharis A. Pozen, acting assistant attorney general in charge of the Justice Department’s antitrust division. “This anticompetitive conduct harmed municipalities as well as taxpayers.”

The settlement will bring to $743 million the amount that banks have paid to end the case, some of which is being returned to localities that were overcharged, the SEC said in a news release. Bank of America Corp., JPMorgan Chase & Co., UBS AG and Wells Fargo & Co. previously settled similar cases.

1999 to 2004

GE’s settlement stems from an investigation that centered on three now-former employees at a unit the finance division discontinued in April 2010, the Fairfield, Connecticut-based company said in a statement today. The conduct took place between 1999 and 2004, GE said.

The settlement won’t have a “material impact” on earnings, according to GE, the world’s biggest maker of jet engines and power-generation equipment. It takes about $100 million in profit to yield 1 cent in per-share earnings at GE, whose operations span energy, aviation, health care, transportation and financial services.

The Justice Department said it agreed not to prosecute GE Funding because it admitted its illegal conduct, cooperated with the investigation and took steps to address anticompetitive conduct. The department also cited GE Funding’s commitment to make restitution.

‘Widespread Corruption’

The federal investigation has exposed “widespread corruption” in a segment of the municipal market that deals with the investment of proceeds from bond issues, the SEC said. States and local governments purchase investment contracts, allowing them to earn a return until the cash is needed for public-works projects.

The contracts were supposed to be awarded to banks that offered the highest return at competitive auctions arranged by financial advisers.

So far, the Justice Department said it has brought criminal charges against 18 former executives of financial-services firms, nine of whom have pleaded guilty. The department said it is continuing to investigate.

The SEC said GE Funding generated millions of dollars by rigging at least 328 transactions in 44 states and Puerto Rico. The firm won deals by getting information about competitors’ bids from brokers that handled the auctions. It either raised a losing bid to a winning bid or reduced its winning bid to a lower amount so that it could make more money on a transaction, the SEC said.

GE Funding also deliberately submitted losing bids allowing other pre-selected firms to win auctions, the SEC said.

In July 2010, three former GE Funding bankers, Dominick Carollo, Steven Goldberg and Peter Grimm, were charged with fraud and conspiracy. They have pleaded not guilty.

The bankers allegedly paid kickbacks to brokers in exchange for their help in controlling and manipulating the bidding process. The kickbacks were then disguised as fees on derivative transactions.

One of the brokers, CDR Financial Products Inc., its founder and two former executives are scheduled to go on trial next month in federal court in Manhattan.

--With assistance from Rachel Layne in Boston and William Selway in Washington. Editors: Stacie Servetah, Mark Schoifet

To contact the reporters on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

View the original article here

GE Settles Muni-Bond Bid Rigging Probe

December 24, 2011, 10:19 AM EST By Martin Z. Braun

(Updates with number of transactions in 11th paragraph.)

Dec. 23 (Bloomberg) -- General Electric Co. agreed to pay $70.4 million to settle a criminal probe and civil claims for conspiring to rig bids on U.S. municipal-bond deals, overcharging state and local governments on investments.

GE Funding Capital Market Services, a former unit, is the fifth company to settle in a more than five-year federal investigation. The deal will resolve probes by the Justice Department, the Securities and Exchange Commission and the Internal Revenue Service as well as attorneys general in 25 states, the Justice Department said today in a statement.

“GE Funding’s former traders entered into illegal agreements to manipulate the bidding process on municipal investment contracts,” said Sharis A. Pozen, acting assistant attorney general in charge of the Justice Department’s antitrust division. “This anticompetitive conduct harmed municipalities as well as taxpayers.”

The settlement will bring to $743 million the amount that banks have paid to end the case, some of which is being returned to localities that were overcharged, the SEC said in a news release. Bank of America Corp., JPMorgan Chase & Co., UBS AG and Wells Fargo & Co. previously settled similar cases.

1999 to 2004

GE’s settlement stems from an investigation that centered on three now-former employees at a unit the finance division discontinued in April 2010, the Fairfield, Connecticut-based company said in a statement today. The conduct took place between 1999 and 2004, GE said.

The settlement won’t have a “material impact” on earnings, according to GE, the world’s biggest maker of jet engines and power-generation equipment. It takes about $100 million in profit to yield 1 cent in per-share earnings at GE, whose operations span energy, aviation, health care, transportation and financial services.

The Justice Department said it agreed not to prosecute GE Funding because it admitted its illegal conduct, cooperated with the investigation and took steps to address anticompetitive conduct. The department also cited GE Funding’s commitment to make restitution.

‘Widespread Corruption’

The federal investigation has exposed “widespread corruption” in a segment of the municipal market that deals with the investment of proceeds from bond issues, the SEC said. States and local governments purchase investment contracts, allowing them to earn a return until the cash is needed for public-works projects.

The contracts were supposed to be awarded to banks that offered the highest return at competitive auctions arranged by financial advisers.

So far, the Justice Department said it has brought criminal charges against 18 former executives of financial-services firms, nine of whom have pleaded guilty. The department said it is continuing to investigate.

The SEC said GE Funding generated millions of dollars by rigging at least 328 transactions in 44 states and Puerto Rico. The firm won deals by getting information about competitors’ bids from brokers that handled the auctions. It either raised a losing bid to a winning bid or reduced its winning bid to a lower amount so that it could make more money on a transaction, the SEC said.

GE Funding also deliberately submitted losing bids allowing other pre-selected firms to win auctions, the SEC said.

In July 2010, three former GE Funding bankers, Dominick Carollo, Steven Goldberg and Peter Grimm, were charged with fraud and conspiracy. They have pleaded not guilty.

The bankers allegedly paid kickbacks to brokers in exchange for their help in controlling and manipulating the bidding process. The kickbacks were then disguised as fees on derivative transactions.

One of the brokers, CDR Financial Products Inc., its founder and two former executives are scheduled to go on trial next month in federal court in Manhattan.

--With assistance from Rachel Layne in Boston and William Selway in Washington. Editors: Stacie Servetah, Mark Schoifet

To contact the reporters on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

View the original article here

AIG Share Sale Resolves Spitzer Probe

May 24, 2011, 12:26 AM EDT By Noah Buhayar

May 24 (Bloomberg) -- American International Group Inc. investors including Ohio firefighters are being compensated for stock declines dating to Eliot Spitzer’s 2004 probe as the insurer raises funds to move beyond a U.S. rescue.

AIG will use $550 million from a share sale scheduled for today to pay for a settlement reached last year in a securities- fraud case brought by investors led by Ohio pension funds. The bailed-out insurer and U.S. Treasury Department are selling 300 million shares to replace government funds with private capital. The sale would raise about $9 billion at yesterday’s closing share price, with two-thirds going to Treasury.

Chief Executive Officer Robert Benmosche, 66, has been working to resolve legal disputes tied to probes by Spitzer, who won a $1.64 billion settlement with AIG in 2006 when he was New York attorney general. Benmosche needs to attract private investors as Treasury seeks to lower its stake in the New York- based insurer from 92 percent.

“The new shareholders, after day one of this share sale, they absolutely want a clean slate,” said Roddy Boyd, author of “Fatal Risk: A Cautionary Tale of AIG’s Corporate Suicide.” AIG’s management has “enough competitive pressures out there, having sold their crown jewels, that they don’t need things weighing on the share price.”

AIG has slipped 38 percent this year through yesterday in New York trading as the insurer was forced to add $4.2 billion to reserves after disclosing a shortfall in February. Benmosche, AIG’s fifth CEO since 2005, has sold the company’s biggest non- U.S. life insurance units to help repay the bailout.

‘Better Trajectory’

The 2006 settlement resolved Spitzer’s allegations that AIG misled investors, faked bids and cheated workers’ compensation programs. The deal, which Spitzer said would “send AIG off on a better trajectory,” failed to restore investor confidence in the firm and fueled the insurer’s disputes with other states, rival insurers, investors and ex-executives.

Record losses in 2008 cast doubt on whether AIG could compensate investors hurt in 2004, said Thomas A. Dubbs, senior partner for Labaton Sucharow LLP and lead counsel for the Ohio funds, which provide for the retirement of firefighters, police officers and teachers. In 2010, as AIG returned to profit and struck a deal to regain independence, Benmosche agreed to settle the case for $725 million, with an initial $175 million payment.

Raising the rest through the share offering was “a creative and outstanding result, given that in the fall of 2008, many people believed AIG might not survive,” said Dubbs.

The agreement also covered public pension funds in New Mexico, Mississippi and California. The group said AIG had fraudulently inflated results, causing the share price to plummet when the deception was uncovered.

‘Restoring the Value’

The accord allows “AIG to continue to focus its efforts on paying back taxpayers and restoring the value of our franchise,” said Mark Herr, a spokesman for the insurer. AIG will use remaining proceeds from its portion of the share sale for general corporate purposes, the company said May 11.

AIG resolved legal disputes in 2009 with former CEO Maurice “Hank” Greenberg, who was forced out during the Spitzer probe. The insurer agreed to reimburse as much as $150 million in legal fees for Greenberg and ex-Chief Financial Officer Howard Smith.

State insurance regulators and AIG’s rivals said the Spitzer settlement didn’t account for all of the firm’s deception in shortchanging workers’ compensation pools and demanded additional funds. Benmosche agreed in December to pay $100 million in fines and $46.5 million in taxes to a group of state regulators.

Liberty Mutual Holding Co. said last month that AIG should pay $1.5 billion to settle a dispute with competitors over the industry pools, more than triple what AIG agreed to in a preliminary settlement with rivals including Travelers Cos. AIG said May 6 that disputes tied to workers’ compensation markets contributed to the insurer raising reserves.

AIG plans to sell 100 million shares today, and Treasury expects to sell 200 million, according to data compiled by Bloomberg. The offering will reduce Treasury’s stake in the insurer to about 77 percent, AIG said in a regulatory filing.

The case is In re American International Group Inc. Securities Litigation, 1:04-cv-08141, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Dan Kraut, William Ahearn

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

View the original article here