Bank of America Corp will pay $137 million to settle a municipal bond bid-rigging probe which is likely to result in more cases being filed in the coming weeks and months.
The investigation centers on whether large U.S. banks decided in advance which investment house would win the auctions of guaranteed investment contracts that cities and counties buy with the proceeds from municipal bond sales.
Often, there is a delay between when bonds are floated and when the money is paid out, allowing some time to invest it.
Christine Varney, head of the U.S. Justice Department's antitrust division, said on a conference call with reporters that she expects a lot more activity in the coming weeks and months on a sprawling industry probe that dates to 2007.
She declined to say who else might be a subject of the Justice Department's probe.
Bank of America, the largest U.S. bank by assets, was first to report the bid-rigging problems within its Banc of America Securities unit to the Justice Department, before federal law enforcement began an industry-wide investigation.
Bank of America was granted amnesty from any penalties because it reported the violations to regulators and cooperated with the investigation.
Bank of America is pleased to put this matter behind it, and has already voluntarily undertaken numerous remediation efforts, a Bank of America spokesman said in a prepared statement.
The settlement was a reminder of the bank's legal troubles in recent years, coming on the same day as Chief Executive Brian Moynihan's presentation at the Goldman Sachs U.S. Financial Services conference where he focused on the bank's 2011 prospects.
Moynihan said the bank will raise its dividend as soon as possible if it passes a second Federal Reserve stress test in 2011, and is targeting a shareholder payout at 30 percent of earnings.
Bank of America will pay $36 million in disgorgement and interest to the U.S. Securities and Exchange Commission, while $101 million will go to other agencies.
The Internal Revenue service will receive $25 million, while the 20 state attorneys general involved in the investigation will distribute $62.5 million to investors affected by the bank's practices.
The bank also will pay $4.5 million to cover the attorneys general's investigation into the matter.
Other banks have not helped the Justice Department's investigation, Varney said.
Bank of America was the first and only one in the door and has provided substantial and continuing cooperation, Varney said.
Eight people employed at other financial services companies -- including JPMorgan Chase & Co and UBS -- have been charged with crimes related to bid-rigging.
Three of the people who pleaded guilty worked for CDR Financial Products, also known as Rubin/Chambers, Dunhill Insurance Services Inc.
Two CDR employees and one former employee were indicted in October 2009 and charged with participating in bid rigging and fraud.
CDR's trial is slated to begin in September 2011.
Bidding agents, the Securities and Exchange Commission said in a statement, provided Banc of America Securities information on competing bids for securities, provided straw man bids that enabled the bank to win transactions unfairly, or steered municipalities' business to the bank.
Those bidding agents were rewarded with gratuitous payments and other kickbacks, and Banc of America Securities' management condoned the practices, the SEC alleged.
As part of the settlement, the SEC also said that Douglas Lee Campbell, a former supervisor on Bank of America's municipal derivatives desk, is barred from associating with any broker, dealer or investment adviser.
Campbell pleaded guilty on September 9, 2010 to two counts of conspiracy and one count of wire fraud for his part in the bid rigging process. Campbell was also not subject to civil money penalties because of his cooperation with the investigation.
(Reporting by Joe Rauch in Charlotte and Diane Bartz in Washington. Editing by Derek Caney, Dave Zimmerman and Robert MacMillan)