JP Morgan Chase will pay $228 million to settle SEC charges that it rigged nearly 100 transactions involving municipal-bond auctions, according to David Benoit’s and Jessica Holzer’s Wall Street Journal article entitled “J.P. Morgan Settles Bid-Rig Case.” There are concurrent settlement agreements with various states. The SEC has settled similar cases against Bank of America for $137 million and UBS AG for $160.2 million.
From 1997 to 2005, JP Morgan manipulated the bidding process of auctions for municipal securities on at least 93 transactions in 31 states by getting agents handling the auctions to give it a “last look” at all the bids, allowing it to win the auctions, the SEC alleged.
JP Morgan reportedly blamed the wrongdoing on certain employees no longer with the firm, who allegedly hid their actions from management. As part of the non-prosecution agreement the U.S. Department of Justice, however, JP Morgan consented to responsibility for the illegal conduct of its former employees, according to the article.
Former JP Morgan vice president James L. Hertz, who has been cooperating with authorities in its probe, was barred from the securities industry based on his guilty plea on charges of criminal conspiracy and wire fraud in connection with municipal-bond transactions, according to the article.
“JPMS improperly won bids by entering into secret arrangements with bidding agents to get an illegal ‘last look’ at competitors’ bids,” Robert Khuzami, Director of the SEC’s Division of Enforcement, was quoted as saying, adding: “Municipal issuers and investors didn’t stand a chance against the fraudulent strategies JPMS and others used to guarantee profits.”
“When powerful financial institutions ‘ conspire with each other to intentionally violate regulations designed to ensure fair investment prices, the integrity of the municipal marketplace becomes corrupted,” Elaine C. Greenberg, who heads the SEC’s Municipal Securities and Public Pensions Unit, was quoted as saying.
This marks the second settlement J.P. Morgan has reached with the SEC in the past two weeks. In June, JP Morgan agreed to pay $154 million to settle SEC charges arising out of a “built to fail” collateralized debt obligation (CDO) called “Squared,” in which JPMorgan allegedly misled investors by failing to disclose that a hedge fund named Magnetar not only helped choose the assets in the deal, but also bet against much of it.
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