For Immediate Release
Media Contact: Bob Cooper
(208) 334-4112

Date: December 23, 2011

Wasden Announces $34.25 Million Multistate Settlement Over Illegal Municipal Bond Derivatives Scheme

(Boise) - Attorney General Lawrence Wasden announced a $34.25 million settlement with GE Funding Capital Market Services, Inc. today.  Idaho entities eligible to receive restitution payments include the Idaho Housing and Finance Association and the Boise City Housing Authority. 

The multistate settlement is the result of an ongoing nationwide investigation of alleged anticompetitive and fraudulent conduct in the municipal bond derivatives industry.

Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed, or to hedge interest-rate risk.

“I appreciate that GE Funding and the states were able to reach an agreement to address our concerns and resolve this matter,” Attorney General Lawrence Wasden said.  “Idaho government entities often participate in bond offerings.  When attendant costs are inflated by unlawful anticompetitive practices, I have a duty to the taxpayers to recover the lost money and stop the unlawful activity.”

In April 2008, the states began investigating allegations that certain large financial institutions, which include national banks, insurance companies, certain brokers and swap advisors, engaged in various schemes to rig bids and commit other fraudulent conduct in the municipal bond derivatives market.

The states’ broader continuing investigation revealed wrongful and deceptive conduct coordinated among individuals at a number of financial institutions, and certain brokers with whom they had working relationships.  The wrongful conduct is:

  • Improper communications among competitors;
  • Submission of non-competitive courtesy bids;
  • Allowing financial institutions improper access to confidential bidding information; and
  • Payment of improper fees to brokers to steer business and submission of fraudulent certifications of compliance to government agencies, among others, in violation of U.S. Treasury regulations.

The states’ investigation into GE Funding’s activities developed evidence that certain traders at GE Funding with specific brokers, engaged in conduct that allowed the broker to determine in advance that GE Funding would win a bid for a guaranteed investment contract by allowing GE Funding to receive a “last look” and arranging for other financial institutions to submit purposely non-winning courtesy bids.

GE Funding has agreed to pay $30 million in restitution to affected state agencies, municipalities, school districts and not-for-profit entities nationwide that entered into guaranteed investment contracts with GE Funding and two of its affiliates – Trinity Funding Company, LLC and Trinity Plus Funding Company, LLC -- between 1999 and 2005.  In addition, GE Funding agreed to pay a $1.25 million civil penalty and $3 million for fees and costs of the investigation to the settling states.

GE Funding is the fifth financial institution to settle with the multistate working group in the ongoing municipal bond derivatives investigation following Bank of America, UBS AG, JP Morgan and Wachovia.  To date, the state working group has obtained settlements worth almost $350 million.

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