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

Bank of New York Mellon Settles Auction-Rate Investigation

December 22, 2011, 9:39 PM EST By Chris Dolmetsch

(Updates with company comment in last paragraph.)

Dec. 22 (Bloomberg) -- Bank of New York Mellon Corp. will pay $1.3 million to New York, Texas and Florida to resolve a probe into manipulative trading of auction-rate securities.

The joint investigation by the Texas State Securities Board, the Florida Office of Financial Regulation and New York Attorney General Eric Schneiderman was tied to the actions of Mellon Financial Markets as an intermediary broker on behalf of Citizens Property Insurance Corp. of Florida, according to statements from Schneiderman’s office and the Florida and Texas agencies. The settlement includes penalties, fees and costs.

Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically reset through auctions. The market for the securities collapsed in February 2008 after major dealers withdrew their support for the auctions, causing most to fail.

“The manipulative trading of auction-rate securities in New York will not be tolerated under any circumstances,” Schneiderman said in a statement. “My office will continue to protect the integrity of New York’s global financial markets at all costs.”

Mellon Financial in January and February 2008 enabled Citizens Property to buy large quantities of its own auction- rate securities by placing bids in its own auctions as if it were an independent third-party buyer, Schneiderman’s office said in a statement.

Help From Mellon

Citizens Property knew that broker-dealers who were managing the securities would have rejected the bids and asked for help from Mellon Financial Markets, which agreed to submit the trades to help the Florida insurer avoid detection, Schneiderman’s office said.

Citizens Property’s bids were below market rates and resulted in the auctions’ clearing at rates lower than they would have had the insurer not intervened, Schneiderman’s office said. Investors earned $6.7 million less in interest than they would have if Citizens hadn’t joined the auctions, the Texas State Securities Board said.

Mellon Financial “traders and their managers understood that CPIC’s bidding would set clearing rates lower than they would have been in the absence of such bidding, and that this would be both detrimental and objectionable to other investors bidding on or holding CPIC’s auction rate securities,” Schneiderman’s office said.

Fees Earned

Mellon Financial earned about $300,000 in fees from the conduct, Schneiderman’s office and the Texas board said. Florida will receive $400,000 of the settlement and Texas will receive $500,000, which will go to the state’s general revenue fund.

At least one broker at Mellon Financial described the trading scenario as “unique” and brought the issue to his supervisor, who didn’t seek legal advice or discuss it with the company’s compliance department, the Texas board said.

After the market collapsed, a broker-dealer, suspicious that Mellon Financial was bidding for Citizens, said orders wouldn’t be accepted on behalf of a company bidding on its own securities, the Texas agency said.

Traders continued the practice until Bank of New York Mellon ordered it to stop, authorities said. One trader said the activity allowed Citizens to “gouge people,” the Texas State Securities Board said.

“BNY Mellon Capital Markets is pleased to have resolved this matter, which centered on the isolated conduct of three individuals who are no longer with the company,” Ron Sommer, a Bank of New York Mellon spokesman, said in a statement.

Two Entities

Mellon Financial Markets was a separate financial entity at the time the activity occurred, the Texas agency said.

It would be inappropriate for Citizens Property Insurance to comment on the settlement, Christine Ashburn, director of legislative and external affairs for the Tallahassee-based company, said in an e-mail.

“It is important to recognize that Citizens was vigilant in obtaining guidance from outside legal counsel prior to engaging in these transactions,” Ashburn said. “We continue to believe that our actions were legally permissible, and we remain committed to providing any information regulators may request.”

--With assistance from David Mildenberg in New York. Editors: Mary Romano, Charles Carter

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

View the original article here