12/21/11 — Court orders bank to pay fines

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Court orders bank to pay fines

By From staff reports
Published in News on December 21, 2011 1:46 PM

The Goldsboro Housing Authority will receive a share of about $2 million from Wachovia Bank, now Wells Fargo, as part of a multi-state settlement of a bid rigging scheme -- money that Housing Authority officials had been unaware of.

The specific amount the authority will receive has not yet been determined, said Noelle Talley, a spokesperson for the state Attorney General's office.

Gene Thomas, Housing Authority executive director, said Tuesday afternoon that based on what he had read on the state Attorney General's website that it appeared it could be weeks before official notification is expected.

"We will wait until we get formal notification before we comment," he said.

Also, Thomas said he is unsure what transaction(s) the settlement involves. He said he would need to talk with the authority's attorney to determine that information.

The Housing Authority will share in the $2 million with Barton College, Blue Ridge Health System, the City of Charlotte, Dare County, Orange County, Cumberland County, Fayetteville Memorial Hospital, Gardner-Webb University, Mocksville Housing Foundation, Iredell County, Mooresville Graded School District, Surry County Hospital District, RDU Airport Authority, UNC Pembroke University Foundation, Wake Forest University and West Jefferson.

The settlement resolves allegations that Wachovia defrauded cities, counties, schools, colleges, hospitals and other agencies that purchased municipal investment derivatives -- a type of investment -- through the bank, Attorney General Roy Cooper said.

Governments and non-profits use municipal investment derivatives to reinvest proceeds from tax-exempt bond offerings until the funds are needed or to guard against changing interest rates, Cooper said.

North Carolina and 25 other states began investigating allegations in April 2008 that some banks, insurance companies, brokers and swap advisors had engaged in deceptive and fraudulent conduct in the municipal bond derivatives market, he said.

According to Cooper, Wachovia, JPMC, UBS and Bank of America along with certain brokers kept the process from being fair by rigging bids and submitting non-competitive courtesy bids.

The alleged schemes enriched financial institutions or brokers at the expense of state agencies, towns, cities, school districts, non-profits and the taxpayers who fund them. As a result, governments and non-profits got artificially low rates of return on these investments or paid higher rates than they should have.

"Rigging the system to prevent fair competition cost taxpayers, local governments and schools millions of dollars," Cooper said. "I'm pleased that we've been able to win money back for those who were harmed here in North Carolina."

Wachovia has agreed to pay $54.5 million in restitution to affected municipalities, school districts and non-profit groups in the 26 states that entered into municipal derivative contracts with the bank between 1998 and 2004.

Wachovia agreed to pay a $1.25 million civil penalty and $3 million for fees and costs of the investigation to the settling states, Cooper said.

The settlement is part of a global settlement worth $148 million that Wachovia is entering into with the U.S. Department of Justice, the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Internal Revenue Service.

Wachovia is the fourth financial institution to settle in the ongoing investigation following Bank of America, UBS AG and JP Morgan. To date, the state has obtained settlements worth almost $310 million.