Attorney General Press Release Header
December 8, 2011



(HARTFORD) - Attorney General George Jepsen announced a $58.75 million multistate settlement with Wachovia Bank N.A. and Wells Fargo Bank, N.A., as its successor, as part of an ongoing investigation of alleged anticompetitive and fraudulent conduct in the municipal bond derivatives industry.

Connecticut and New York led the investigation for the working group of 25 states and the District of Columbia. As part of the multistate settlement, Wachovia has agreed to pay $54.5 million in restitution to affected state agencies, municipalities, school districts and not-for-profit entities nationwide that entered into municipal derivative contracts with Wachovia between 1998 and 2004.

“This settlement with Wachovia is another example of the state task force’s determination to prosecute anticompetitive conduct in the municipal bond derivatives marketplace,” said Attorney General Jepsen. “Wachovia was entrusted with taxpayer money and Wachovia violated that trust. This settlement is about righting that wrong.”

A preliminary estimate of the state’s share of the restitution payments is less than $50,000, given the limited impact of the conduct in Connecticut. However, as a lead state in the investigation, Connecticut also will receive an as-yet undetermined share of a $1.25 million civil penalty and $3 million in fees and expenses for the investigation, which Wachovia agreed to pay to the settling states.

The multistate settlement is one part of a coordinated $148 million settlement that Wachovia entered into today. The bank also reached agreement with the U.S. Department of Justice's Antitrust Division, the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Internal Revenue Service.

Wachovia is the fourth financial institution to settle with the multistate task force in the ongoing municipal bond derivatives investigation, which has obtained settlements for the participating states worth approximately $310 million to date. The other settlements were with Bank of America, UBS AG and JP Morgan.

Jepsen acknowledged Wells Fargo, Wachovia’s parent, “for its cooperation and its willingness to address the wrongdoing by providing meaningful restitution to those harmed. Wells Fargo’s agreement to continue cooperation – a critical component of this settlement – will provide the task force with further evidence against Wachovia’s co-conspirators.”

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 various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market, were being used by certain large financial institutions, including national banks and insurance companies, and certain brokers and swap advisors.

The ongoing investigation uncovered alleged collusive and deceptive conduct involving individuals at Wachovia and other financial institutions, and certain brokers with whom they had working relationships. The alleged wrongful conduct took the form of bid-rigging, submission of non-competitive courtesy bids and submission of fraudulent certifications of compliance to government agencies, among others, in contravention of U.S. Treasury regulations.

The objective of the schemes was to enrich the financial institution and/or the broker at the expense of the issuer - - and ultimately taxpayers - - depriving the issuer of a competitive, transparent marketplace. As a result of the alleged wrongful conduct, state, city, local, and not-for-profit entities entered into municipal derivatives contracts on less advantageous terms than they would have otherwise.

Assistant Attorney General Michael E. Cole, chief of the Antitrust Department, along with Assistant Attorney General Christopher Haddad and Paralegal Lori Measer handled this case for the Attorney General.

View the Settlement Agreement - (PDF - 415KB)


Media Contact:

Susan E. Kinsman

860-808-5324 (office)

860-478-9581 (cell)

Consumer Inquiries:


Facebook: Attorney General George Jepsen

Twitter: @AGJepsen