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Wells Fargo Agrees to $58.75 Million Multi-State Settlement

Some NJ towns and school districts may be due restitution

Wachovia Bank and Wells Fargo, its successor, agreed on Thursday to a $58.75 million settlement with a multi-state task force as part of an ongoing national investigation of alleged anti-competitive and fraudulent conduct in the municipal bond derivatives industry, according to the state Attorney General's office.


Ultimately, the settlement means certain municipalities, school districts and nonprofits in New Jersey may be entitled to restitution.

However, the state Attorney General's office does not have a list "for public dissemination" of the bond issuers, towns, school districts and organizations that may be entitled to restitution, according to Leland Moore, a spokesman for the attorney general's office.

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.

Municipal and school district officials in Point Borough and Point Beach could not immediately be reached on Thursday regarding whether they had contracted with Wachovia and, consequently, may be entitled to restitution.

A prepared statement from the state attorney general's office says, "Under the settlement, Wachovia will pay municipal bond issuers in New Jersey upwards of $2 million in restitution, according to preliminary estimates."

"That $2 million represents the preliminary, estimated total amount that eligible bond issuers in New Jersey who choose to participate, will receive," Moore wrote in an email on Thursday afternoon.

"Each eligible bond issuer will be notified by the claims administrator that it is eligible to participate in the settlement (that is, eligible to receive restitution)," Moore added.

The multi-state task force settlement is part of a coordinated global $148 million settlement that Wachovia entered into on Thursday, according to the statement.

Nationwide, Wachovia has agreed to pay a total of $54.5 million in restitution to affected state agencies (in 26 states), municipalities, school districts and not-for-profit entities that entered into municipal derivative contracts with Wachovia between 1998 and 2004 and are eligible to participate in the settlement, the statement says.

In addition, Wachovia has agreed to pay a $1.25 million civil penalty and $3 million for fees and costs of the investigation to the 26 settling states.

Wachovia 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 multi-state task force in the ongoing municipal bond derivatives investigation.

The others are Bank of America, UBS AG and JP Morgan. To date, the multi-state task force has obtained settlements worth more than $300 million.

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 investigation, which remains ongoing, revealed collusive and deceptive conduct involving individuals at Wachovia and other financial institutions, and certain brokers with whom they had working relationships," the statement says.

"The 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.

"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," the statement says.

"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 otherwise would have," the statement says.

In addition to New Jersey, other Attorneys General joining the settlement are: Alabama, California, Colorado, Connecticut, District of Columbia, Florida, Idaho, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Tennessee and Wisconsin.

Deputy Attorney General Joshua T. Rabinowitz, Deputy Attorney General Toral M. Joshi, Assistant Attorney General Brian F. McDonough, and Assistant Attorney General Carol Jacobson handled the matter on behalf of the state.


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