Ten Connecticut municipalities, agencies, education institutions and not-for-profit entities are now eligible for more than a million dollars in restitution through a $92 million settlement reached with JP Morgan Chase & Co. (“JPMC”) last year, according to the Connecticut Attorney General's Office. Details have been provided to the 10 entities explaining how they can receive restitution through the settlement, which was reached as part of an ongoing nationwide investigation into alleged anticompetitive and fraudulent conduct in the municipal bond derivatives industry. Connecticut led the multi-state investigation with Illinois, New York and Texas for the working group of 24 states and the District of Columbia. The Connecticut entities eligible to participate in the settlement and receive restitution totaling $1,035,233.12 are:
- Quinnipiac University – eligible for $280,669.12
- Fairfield University – eligible for $243,371.96
- The Corporation for Independent Living – eligible for $213,424.99
- South Central Connecticut Regional Water Authority – eligible for $128,341.50
- Town of Stratford – eligible for $100,426.14
- Yale University – eligible for $19,918.50
- Town of Fairfield – eligible for $15,858.61
- City of Bridgeport – eligible for $14,166.03
- Connecticut Housing Finance Authority – eligible for $9,850.88
- The Westminster School – eligible for $9,205.41
“Issuers including state and municipal government agencies and not-for-profit organizations entrusted taxpayer money to JPMC, and the company violated that trust by steering those funds into rigged or tainted municipal derivatives contracts,” said Attorney General George Jepsen, co-chair of the Antitrust Committee for the National Association of Attorneys General. “While it is up to each, individual entity to decide whether or not they want to participate in the settlement, I believe that the settlement is appropriate and will compensate these entities for the losses arising from this financial institution’s wrongful conduct.”
As part of the July 2011 settlement, JPMC agreed to pay $65.5 million in restitution to affected state agencies, municipalities, school districts and not-for-profit organizations that entered into municipal derivative contracts with the company between 2001 and 2005. Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed or to hedge interest-rate risk. In April 2008, the states began investigating allegations that certain large financial institutions – including national banks and insurance companies and certain brokers and swap advisors – engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.
The wrongful conduct took the form of bid-rigging, submission of noncompetitive courtesy bids and submission of fraudulent certifications of compliance to government agencies, among others, in contravention of U.S. Treasury regulations. The objective was to enrich the financial institution and/or the broker at the expense of the issuer – and ultimately taxpayers – by depriving the issuer of a competitive, transparent marketplace. As a result, state, city, local and not-for-profit entities entered into municipal derivatives contracts on less advantageous terms than they would have otherwise.