Wells Fargo will pay $148.2 million to settle federal and state charges that it rigged dozens of bidding competitions to win business from cities and counties.
The U.S. Department of Justice, along with federal and state regulators, had been investigating the actions of employees at Charlotte, N.C.-based Wachovia Bank, which Wells Fargo & Co. acquired in 2008.
The Securities and Exchange Commission said Wachovia generated millions of dollars in illicit gains during an eight-year period when it fraudulently rigged at least 58 municipal bond transactions in 25 states and Puerto Rico.
“Wachovia won bids by playing an elaborate game of ‘you scratch my back and I’ll scratch yours,’ rather than engaging in legitimate competition to win municipalities’ business,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
Banks help states and municipalities raise money for projects such as building schools by selling bonds to investors. Portions of those proceeds may not be spent immediately, and banks will help the municipalities invest those funds until they’re needed. The SEC said the banks rigged the bidding process for some of those investments, forcing municipalities to pay prices for securities that were above fair market value.
The SEC said Wachovia won some bids through a practice known as “last looks,” in which it got information from agents about competing bids. It also won bids through ’set-ups,” in which the bidding agent deliberately obtained nonwinning bids from other providers in order to rig the field in Wachovia’s favor.
Wells Fargo settled a separate civil case in federal court in New York last month over similar allegations. The bank paid $37 million to settle that case.
The San Francisco bank said it was pleased to have resolved the matter. It noted that the transactions had been done by employees who are no longer with the company.
Wells is not the only bank to settle similar fraud charges brought by federal and state authorities over rigging municipal bond bidding.
In July, a unit of JPMorgan Chase agreed to pay $228 million to settle civil fraud charges that it rigged dozens of bidding competitions to win business from cities and counties. Bank of America agreed in December to pay $137 million. UBS agreed in May to pay $160 million.