Wednesday, September 21, 2011

JP Morgan May Have Rigged Cleveland Municipal Bond Bids

Posted By on Wed, Sep 21, 2011 at 10:35 AM


As the Securities and Exchange Commission continues to make a half-pass at holding Wall Street players accountable for pre-Great Recession chicanery, the city of Cleveland might see some of JP Morgan Chase & Co’s indulgence money come its way.

The state of Ohio was recently named in a $92 million settlement between the bank and local governments for “fraudulent bidding practices” in municipal bond derivatives transactions. That chunk of change is part of a larger $228 million dollar bill government regulatory agencies have handed the bank for prior bad acts. According to the Ohio Attorney General’s office, the city of Cleveland may have been one of the duped parties.

Government investigators claim that between 1997 and 2005, JP Morgan bid on municipal bond work, but through shady arrangements with third parties, the bank got an unfair edge on the competition. Often, this involved getting a “last look” at what other institutions were offering a municipality. Also, the bank would submit sham bids or work with other pals to fix prices. Ultimately, the set up deprived the suckers on the other end of the deal (i.e. municipalities, and therefore, taxpayers, and therefore, you and me) free market prices.

Among the 93 fraudulent transactions are deals with the Ohio Public Facilities Commission and the Columbus Regional Airport Authority.

The city of Cleveland was also involved, but exact details have yet to shake out. When contacted by Scene, the Ohio Attorney General’s office could only confirm that Cleveland was involved in a rigged bond bid in 2003. Office spokesman Mark Moretti says the review process is still underway to see if the city will get any money back.

The city is also somewhat in the dark about the financial scam. “To date, the AG’s office has not provided us with any details, nor has our review of 2003 bonds found anything unusual,” Mayor Jackson’s chief communications officer Maureen Harper told Scene via an e-mail. “Therefore, we do not know with any certainty that the City will receive any restitution.”

When Scene dipped our toe into the available federal court documents, we didn't find any mention of a transaction with the city. That said, keep in mind, from the cheap seats here, this thing looks like a colossal mess, with no Evian-clear perspective of who was involved with what when and for how much. Consider: the government and JP Morgan can't really even decide on how much money the bank owes in restitution; Reuters reports JP Morgan says its $211 million, the SEC maintains $228 million.

JP Morgan isn't the only Wall Street heavy caught messin' with the municipal bid process. Bank of America entered into a $137 million settlement with the government in December, and Swiss bank UBS agreed to pay $160 million in May.

So yeah, like we said, pretty big mess. If this makes you want to drop everything and march on Wall Street, that's completely understandable.

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