WASHINGTON (CN) – Banc of America Securities and affiliates will pay $137 million in fines and disgorgement to settle charges of rigging bids for municipal securities investments, the SEC said. “The conduct was egregious – in return for business, the company repeatedly paid undisclosed gratuitous payments and kickbacks and affirmatively misrepresented that the bidding process was proper,” the SEC enforcement director said in a statement.
“When investors purchase municipal securities, the municipalities generally invest the proceeds temporarily in reinvestment products before the money is used for the intended purposes,” the SEC said in a statement announcing the settlement. “Under relevant IRS regulations, the proceeds of tax-exempt municipal securities must generally be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process, whereby bidding agents search for the appropriate investment vehicle for a municipality.
“In its Order, the SEC found that the bidding process was not competitive because it was tainted by undisclosed consultations, agreements, or payments and, therefore, could not be used to establish the fair market value of the reinvestment instruments. As a result, these improper bidding practices affected the prices of the reinvestment products and jeopardized the tax-exempt status of the underlying municipal securities, the principal amounts of which totaled billions of dollars.”
Banc of America Securities is now known as Merrill, Lynch, Pierce, Fenner & Smith.