Attorney General Schmidt: Municipal bond settlements return money to state, local entities

TOPEKA (December 28, 2011) Kansas Attorney General Derek
Schmidt today announced settlements with Wachovia and GE Funding
Capital Market Services that are expected to return more than
$250,000 to a state agency, municipalities and nonprofit
organizations. The settlements resulted from an investigation by
several states and federal agencies. The ongoing nationwide
investigation is looking into allegations of anticompetitive and
fraudulent conduct in the municipal bond derivative industry. These
settlements will return funds to Kansas municipalities and
nonprofit organizations harmed by this conduct, Schmidt said. We
are continuing to work with our counterparts in other states to
investigate other companies that may have engaged in these unfair
business practices. 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
municipal derivative contracts with GE Funding or its subsidiaries
Trinity Funding Company, LLC, and Trinity Plus Funding Company,
LLC, between 1998 and 2006. It is anticipated that $208,000 of that
amount will be returned to Kansas entities harmed by the companys
practices. A large portion of the Kansas funds will be returned to
the Kansas Development Finance Authority. KDFA facilitates
long-term financing for capital projects and programs, including
healthcare, education, and housing, via the issuance of taxable and
tax-exempt bonds or other securities. KDFA is the only
multi-purpose, state-level finance authority serving Kansas. The
Wachovia settlement will return $54.5 million to state agencies,
municipalities, school districts and not-for-profit entities
nationwide that entered into municipal derivative contracts with
Wachovia between 2001 and 2005. An estimated $58,000 of that amount
will be returned to Kansas entities. Once all eligible entities
have been identified, those municipalities and non-profit agencies
should be notified by the settlement administrator in the coming
months. Municipal bond derivatives are contracts used by tax-exempt
issuers to reinvest bond proceeds until the funds are needed, or to
hedge interest-rate risk. In April 2008, the states began
investigating allegations that some financial institutions engaged
in various schemes to rig bids and commit other deceptive, unfair
and fraudulent conduct in the bond derivatives market. The
investigation revealed improper conduct involving individuals at
several financial institutions and certain brokers with whom they
had working relationships. The wrongful conduct deprived bond
issuers of a competitive, transparent marketplace. As a result,
states, local governments and not-for-profit entities entered into
municipal derivatives contracts on less advantageous terms than
they would have otherwise, thereby adding costs to taxpayers. Six
settlements have been reached since the start of this
investigation, including five this year.