Wachovia Agrees to Pay $148M To Settle Bid-Rigging Claims

WASHINGTON, D.C. - (Mealey's) Wachovia Bank N.A. has agreed to pay $148 million to settle claims with a number of state and federal government agencies that alleged that Wachovia fraudulently engaged in "secret arrangements with bidding agents to improperly win business from municipalities and guarantee itself profits in the reinvestment of municipal bond proceeds," the Securities and Exchange Commission announced yesterday in a press release (Securities and Exchange Commission v. Wachovia Bank, N.A., No. 11-7135, D. N.J.).

Under the terms of the settlement, which are subject to court approval, Wachovia agrees to pay the SEC $46 million, which will be disbursed to "affected municipalities or conduit borrowers," according to the SEC.

Wachovia will pay an additional $102 million to the U.S. Department of Justice, the Office of the Comptroller of the Currency, the Internal Revenue Service and 26 state attorneys general to settle claims with them, the SEC said.

Parallel Investigations

"The settlements arise out of long-standing parallel investigations into widespread corruption in the municipal securities reinvestment industry in which 18 individuals have been criminally charged by the Justice Department's Antitrust Division," the SEC said.

The SEC also filed its complaint against Wachovia on Dec. 8 in the U.S. District Court for the District of New Jersey.

The SEC alleged that Wachovia engaged in fraudulent bidding of guaranteed investment contracts, repurchase agreements and forward purchase agreements from at least 1997 to 2005 in violation of Section 17(a) of the Securities Act of 1933.

Illicit Gains

According to the press release, the SEC contends that "Wachovia generated millions of dollars in illicit gains during an eight-year period when it fraudulently rigged at least 58 municipal bond reinvestment transactions in 25 states and Puerto Rico.  Wachovia won some bids through a practice known as 'last looks' in which it obtained information from the bidding agents about competing bids.  It also won bids through 'set-ups' in which the bidding agent deliberately obtained non-winning bids from other providers in order to rig the field in Wachovia's favor.  Wachovia facilitated some bids rigged for others to win by deliberately submitting non-winning bids."

The SEC is represented by Elaine C. Greenberg, Mark R. Zehner, Mary P. Hansen, Denise D. Colliers, G. Jeffrey Boujoukos and Scott A. Thompson of the Philadelphia Regional Office of the SEC in Philadelphia.

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