Tuesday, December 7, 2010

SEC Press Release: Banc of America Bid Rigging

 SEC Charges Banc of America Securities With Fraud in Connection With Improper Bidding Practices Involving Investment of Proceeds of Municipal Securities

The U.S. Securities and Exchange Commission (SEC) issued a press release today announcing that it had
charged Banc of America Securities, LLC (BAS) with securities fraud for its part in an effort to rig bids in connection with the investment of proceeds of municipal securities.
BAS has agreed to pay over $36 million, together with its affiliates, it has agreed to pay over $100 million to other federal and states. The SEC Order can be found here.
Proceeds in the sale of municipal securities are temporarily invested in reinvestment products before they can be used by the municipalities for their intended purpose. Reinvestment products are supposed to be chosen in a competitive bidding process. Under Internal Revenue Services (IRS) regulations, for municipal securities to be tax-exempt, the proceeds must be invested at fair value. The SEC found that BAS had rigged the competitive bidding process through secret agreements and deals and thereby affected the prices of the reinvestment products and “jeopardized the tax-exempt status of the underlying municipal securities”. According to the SEC, BAS had paid bidding agents so that it could win bids for 88 reinvestment products.

Municipal bonds are bonds issued by government entities at the city, county and state levels. Municipalities issue bonds to finance their projects for the public good. These bonds are called municipal bonds, and their rates may be fixed or floating. They are usually long term bonds. Municipalities usually use the proceeds of the bonds to purchase reinvestment products before using them for the municipalities’ intended purpose.

SLCG has written several papers relating to municipal bonds:
Investors may find in our dedicated website many other interesting papers and notes.

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