Florida to Share in Multistate GE Funding Settlement

Florida will get a share of the $70 million in settlements that GE Funding Capital Market Services has agreed to pay as the result of a nationwide investigation into an illegal municipal bond derivatives scheme.

A multistate settlement is worth $34.25 million to Florida and other states as part of an ongoing investigation of alleged illegal conduct in the municipal bond derivatives industry, Attorney General Pam Bondis office announced on Friday.

Florida should see more than $1.3 million from the settlement, the attorney generals office estimated.

This settlement is the sixth of its kind since Ive taken office, Bondi stated in a release. We will not allow entities to rig bids and harm taxpayers with these anti-competitive, fraudulent business practices.

GE Funding also reached agreement with the U.S. Securities and Exchange Commission, the U.S. Department of Justices Antitrust Division and the Internal Revenue Service.

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.

According to the attorney generals office, the states investigation developed evidence that certain traders at GE Funding, in concert with certain brokers, engaged in conduct that allowed the broker to determine in advance that GE Funding would win a bid for a guaranteed investment contract by allowing GE Funding to receive a 'last look' and arranging for other financial institutions to submit purposely nonwinning courtesy bids. On many occasions, due to the 'last look,' GE Funding was able to lower its bid to the issuer and still win the transaction.

In April 2008, the states began investigating allegations that certain large financial institutions, including national banks and insurance companies, and certain brokers and swap advisers, engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market, the attorney generals office stated.

The states broader investigation, which is still ongoing, has revealed wrongful and deceptive conduct coordinated among individuals at a number of financial institutions, and certain brokers with whom they had working relationships. The wrongful conduct took the form of improper communications among competitors, submission of noncompetitive courtesy bids, allowing financial institutions improper access to confidential bidding information, payment of improper fees to brokers to steer business and submission of fraudulent certifications of compliance to government agencies, among others, in contravention of U.S. Treasury regulations.

Regardless of the means used to carry out the various schemes, the objective 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 such wrongful conduct, state, city, local and not-for-profit entities entered into municipal derivatives contracts on less advantageous terms than they would have otherwise.

In the multistate settlement, GE Funding will pay $30 million to state agencies, municipalities, school districts and not-for-profit entities nationwide that entered into guaranteed investment contracts with GE Funding and two of its affiliates -- Trinity Funding Company LLC and Trinity Plus Funding Company LLC -- between 1999 and 2005.

GE Funding will also pay a $1.25 million civil penalty and $3 million for fees and costs of the investigation to the settling states.

GE Funding follows Bank of America, UBS AG, JP Morgan and Wachovia in reaching settlements in the multistate investigation that combined are worth almost $350 million.