Wells Fargo Pays $148 Million for Defrauding Municipalities


Wells Fargo will pay $148 million to settle charges that its Wachovia Bank unit conspired to rig bids on investment contracts for municipalities. (“Wells to Pay $148 Million to Settle Wachovia Bid-Rig Case,” Wall Street Journal). As part of the settlement, the Justice Department will not prosecute the bank. Wachovia reportedly admitted and accepted responsibility for the illegal conduct (which the SEC has so far not required settling defendants to do).

The Justice Department, Securities and Exchange Commission and state regulators accused former Wachovia employees and others of rigging the bidding process for government entities seeking short- term investments for money raised in municipal bond offerings until it was time to spend the money on public projects.

According to the article: The case against Wachovia involved at least 58 transactions in 25 states and Puerto Rico that took place from at least 1997 to 2005. Wachovia won some bids after receiving “last looks” at competitors’ bids, and won other bids after competitors purposely submitted losing bids. Wachovia also intentionally submitted losing bids at times to facilitate the efforts of other firms to win business.

“Wachovia won bids by playing an elaborate game of ‘you scratch my back and I’ll scratch yours,’ rather than engaging in legitimate competition to win municipalities’ business,” Robert Khuzami, director of the SEC’s Division of Enforcement, was quoted as saying.

The fraudulent-bidding increased the prices that the municipalities paid for these short-term investments. The SEC said the bank will pay $46 million to affected municipalities or so-called conduit borrowers, and an additional $102 million as directed by agreements with the Justice Department, 26 state attorneys general and other authorities.

Wachovia is the fourth bank to reach a settlement in a long-running U.S. investigation into the municipal-securities market.

Earlier this year, J.P. Morgan Chase agreed to pay $228 million, and UBS AG agreed to pay $160 million for similar abuses while Bank of America agreed to pay $137 million last year.

Page Perry is an Atlanta-based law firm with over 170 years collective experience protecting investor rights and fighting Wall Street greed.