JPMorgan Chase said it agreed to pay $211.2 million to settle federal and state probes into the conduct of some of its former workers on its municipal derivatives desk, prior to 2006.
Under the terms of the settlements, JPMorgan Chase will pay $50.0 million to the Internal Reveune Service, $51.2 million to the Securities and Exchange Commission, $35.0 million to the Office of the Comptroller of the Currency and $75.0 million to state attorney generals pursuing the case.
Of those funds, $129.7 million will be eligible for distribution to municipalities and other tax-exempt issuers, JPMorgan Chase said. The settlements are not expected to have any material impact its earni
JPMorgan Chase, in announcing the settlements, said it "does not tolerate anticompetitive activity or other violations of law" and that it "assisted the government agencies in their investigations and is pleased to have resolved this matter with its regulators.
“JPMS improperly won bids by entering into secret arrangements with bidding agents to get an illegal 'last look' at competitors’ bids,” said Robert Khuzami, Director of the SEC's Division of Enforcement. “Municipal issuers and investors didn't stand a chance against the fraudulent strategies JPMS and others used to guarantee profits."
The SEC said that when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes.
Under relevant Internal Revenue Service regulations, the proceeds of tax-exempt municipal securities generally must be invested at fair market value. The most common way of establishing fair market value, it said, is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.
The SEC alleges that from 1997 through 2005, JPMS’s "fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for reinvestment products, and deprived certain municipalities of a conclusive presumption that the reinvestment instruments had been purchased at fair market value."
According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, JPMS at times won bids because it obtained information from the bidding agents about competing bids, a practice known as “last looks.”
In other instances, the firm won bids set up in advance for JPMS to win because the bidding agent deliberately obtained non-winning bids from other providers.
The investigations, JPMorgan said, "focused on a small desk that was discontinued and on certain employees who are no longer with the firm. These employees concealed their conduct from management."