JP Morgan Penalized $228 Million to Settle Bid Rigging Charges

JP MorganJP Morgan Chase has agreed to pay nearly a quarter of a billion dollars in compensation, penalties and disgorgement to federal and state agencies to settle charges of bid rigging in the municipal bond market, the Justice Department announced.

Under the agreement, the nation's second-largest bank "admits, acknowledges and accepts responsibility for illegal and anticompetitive conduct" by former employees at its municipal derivatives desk, who, from 2001 through 2006, rigged bids and manipulated the bidding process on municipal investment contracts.

"By entering into illegal agreements to rig bids on certain investment contracts, JPMorgan and its former executives deprived municipalities of the competitive process to which they were entitled," U.S. Assistant Attorney General Christine Varney said in a statement."Today's agreements ensure that JPMorgan will pay restitution to the municipalities harmed by its anticompetitive conduct, disgorge its profits from the illegal activity and pay penalties for the criminal conduct," Varney added. "We are committed to rooting out anticompetitive activity in the financial markets, and our investigation into the municipal bond derivatives industry, which has led to criminal charges against 18 former executives, remains active and ongoing."

Under the settlement, JPMorgan must compensate victims of its illegal practices and cooperate with the Justice Department's Antitrust Division in its ongoing investigation into anticompetitive conduct in the municipal bond derivatives industry.

To date, the investigation has resulted in criminal charges against 18 former executives of various financial services companies, including James Hertz, a former JPMorgan employee. Nine of the 18 executives charged have already pleaded guilty, including Hertz.

JP Morgan also reached separate but related agreements with the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Fed) and 25 state attorneys generals.

The agreements call for the payment of penalties, return of ill-gotten gains and restitution to victims damaged by the manipulation and bid rigging by JP Morgan employees.

The banking behemoth will, however, escape prosecution by the Justice Department for its illegal activity -- provided it honors the settlement -- due to JP Morgan's:
  • Admission of guilt
  • Cooperation with the Department of Justice and other enforcement and regulatory agencies
  • Monetary and non-monetary commitments to the SEC, IRS, OCC, Fed and state attorneys general
  • Remedial efforts to address the anticompetitive conduct

The department's ongoing investigation into the municipal bonds industry is being conducted by the Antitrust Division, the FBI and the IRS-Criminal Investigation unit. The department is coordinating its investigation with the SEC, the OCC and the Federal Reserve Bank of New York.

In May 2011, UBS AG agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies for similar illegal conduct in the municipal bond derivatives market.
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