Bank to Pay Millions to Municipalities, Schools and Nonprofits for Illegal Practices
Â â”€ Illinois Attorney General Lisa Madigan today announced a $92 million multistate settlement with JPMorgan Chase & Co. over a scheme to rig bids and engage in anticompetitive practices that defrauded local municipalities, schools, hospitals and prominent nonprofits that purchased municipal bond derivatives from the bank.
â€œJPMorgan Chase concocted a scheme to enrich themselves by cheating hospitals and schools out of much needed resources,â€ said Attorney General Madigan. â€œTodayâ€™s settlement will restore funding to agencies throughout Illinois for use as they originally intended â€“ to improve services in their communities.â€
Madigan joined 23 states and the in the settlement, which will result in more than $2.2 million in restitution for Illinois municipalities, school districts, hospitals and nonprofits harmed by the bankâ€™s efforts to orchestrate illegal bids for municipal derivatives. JPMC is the third financial institution to settle with the multistate working group in the ongoing municipal bond derivatives investigation. Bank of America and UBS previously settled with the states for $67 million and $90.8 million, respectively.
Todayâ€™s agreement centered on allegations that from 2001 to 2005, JPMC conspired with financial institutions and brokers to rig bid prices for municipal derivatives, circumventing the competitive bidding process. In some instances, JPMC and other financial institutions communicated directly with each other, and not through brokers, to fix prices or to fix rates or key terms of these transactions. Brokers also frequently offered JPMC and other financial entities the unfair advantage of reviewing other bids, thus rigging who would win the deal.
Municipalities, schools and other organizations typically issue municipal bonds to fund capital projects. Once bonds are issued, the money is typically placed into accounts to spend as the local entity incurs expenses for the project. Because the money from the bonds does not need to be spent immediately, the entity that issued the bonds typically seeks to invest the money and may also use strategies to manage or transfer the bondâ€™s interest rate risk. These investment accounts and risk management products â€“ which are collectively called â€œmunicipal bond derivativesâ€ â€“ are offered by large financial institutions.
Entities affected by the bankâ€™s scheme and todayâ€™s settlement include the following:
- Chicago Transit Authority
- City of Chicago
- City of
- City of
- Evanston Northwestern Hospital
- Glenbard Schools
- Jewish Federation of Metropolitan Chicago
- Metropolitan Water Reclamation District of Chicago
- Village of
- YMCA of Chicago
- City of
- Health System
- Metro East Transit District of
- Rockford School District
Madigan said JPMCâ€™s practices illegally and unreasonably restrained competition in the sale of these municipal derivatives in violation of Illinoisâ€™ antitrust laws. This conduct brought on financial harm to municipalities, local agencies such as hospitals and schools, and nonprofits that relied on JPMCâ€™s services. Entities that purchased a municipal derivative from JPMC will be eligible to receive restitution as part of this settlement.
Other states joining in the JPMC settlement include , , , , , , , , , , , , , , , , , , , Texas, Tennessee and Wisconsin.
The statesâ€™ investigation into financial institutions involved in this scheme remains ongoing in conjunction with a federal investigation by the U.S. Department of Justice, Securities and Exchange Commission and the Internal Revenue Service.
Bureau Chief Robert W. Pratt and Assistant Attorney General Jamie Manning are handling this case for Madiganâ€™s Antitrust Bureau.