By Mike Cherney
J.P. Morgan Securities has agreed to pay up to $44.6 million to resolve claims from municipalities that it conspired to fix prices and rig bids for municipal derivatives, becoming the latest bank to settle the class-action civil suit.
U.S. District Judge Victor Marrero in New York approved the settlement terms late Monday. He scheduled a hearing on Dec. 14 to consider final approval.
The city of Baltimore, the Mississippi Department of Transportation and five other public entities sued a group of banks on behalf of other cities, universities and special districts, accusing the banks of rigging bids to provide services to municipalities.
Morgan Stanley and Wachovia Bank previously settled, court documents said.
The civil suit is in addition to charges levied against J.P. Morgan by the U.S. Securities and Exchange Commission and other federal and state authorities.
UBS Financial Services, Banc of America Securities, GE Funding Capital Market Services, Wachovia and J.P. Morgan, have agreed to settle those charges for more than $700 million in total, according to the SEC.
"It shows that it is possible to have a dual resolution where state and private recoveries are complementary," said Michael Hausfeld, co-lead attorney for the municipalities.
The allegations involve bidding and pricing for various investment products, which municipalities use to reinvest proceeds from municipal-bond sales that are not immediately needed, according to the SEC. Proceeds of tax-exempt municipal bonds must be invested at fair market value, and the most common way to do so is through a competitive bidding process.
According to the SEC, J.P. Morgan at times won bids because it obtained information from the bidding agents about competing bids. Other times, the bidding agent deliberately obtained non-winning bids from other providers, allowing the bank to essentially win in advance. The municipalities alleged they received lower interest rates than they would have received otherwise.
"Anytime that you have collusion in the financial markets, it means that purchasers or investors are going to be cheated," Hausfeld said.
Other banks have not yet settled the class-action case, Hausfeld said.
A representative for J.P. Morgan declined to comment.
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