Bank of America Pays $137 Million in Bid-Rigging Case

Editor’s Note: Bid Rigging is exactly what is happening at the steps of every foreclosure action involving so-called securitized loans. Here BofA admits it but not for home foreclosures. The party submitted the non-cash bid (called a credit bid) is not the creditor, and the title is transferred to yet another party who is also not a creditor. This is one of the many reasons why (1) the sales can be overturned and (2) if you go to the auction and bid and then sue to invalidate the first bidder (who might have bid the full amount claimed under the loan) you might get the property for a LOT LESS than the so-called principal due and even less than normal fair market value. It could be argued that with title clouded, the bid of $100 from you was more than sufficient.

Bank of America plans to begin testing new bank offerings in December.Mario Tama/Getty Images Bank of America plans to begin testing new bank offerings in December.

Bank of America agreed on Tuesday to pay federal and state authorities $137 million to settle charges that its securities group helped rig bids on municipal bond contracts, according to the Securities and Exchange Commission.

The settlement is part of a wide-ranging inquiry into the municipal derivatives markets. The investigation has centered on whether Wall Street banks improperly won investments while defrauding cities, school districts and nonprofits. Eight bankers have already pleaded guilty to charges of fraud and conspiracy, including former executives at Bank of America, UBS and JPMorgan Chase.

“This ongoing investigation has helped to expose wide-spread corruption in the municipal reinvestment industry,” Robert Khuzami, director of the S.E.C.’s Division of Enforcement, said in a statement. “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.”

Bank of America first reported its own potential wrongdoing to the Justice Department in 2007 — the only bank to do so. The conduct is believed to have taken place between 1998 and 2003.

In return, the federal government agreed not to bring criminal charges against the company, immunity that does not apply to its employees. One former executive, fired in 2002, pleaded guilty to charges of fraud and conspiracy. As part of the settlement with the S.E.C., the company neither admitted nor denied wrongdoing.

“Bank of America is pleased to put this matter behind it, and has already voluntarily undertaken numerous remediation efforts,” the company said in a statement.

The bank said it “continues to cooperate with all agencies on their inquiries into practices by various companies participating in the municipal derivatives markets during this time period.”

When towns and cities sell bonds, the municipalities generally invest the proceeds until they need to use the money. A middleman, known as a bidding agent, facilitates the process, setting up a competitive bid for those investment dollars.

In the charges against Bank of America, the S.E.C. alleged the process was not competitive because bidding agents directly steered business to the bank. Bank of America employees, investigators claimed, returned the favor, in part through kickbacks.

Besides the S.E.C., the settlement involves the Office of the Comptroller of the Currency, the Internal Revenue Service and 20 states. Bank of America agreed to pay $25 million to the I.R.S., $9 million to the O.C.C., $4.5 million to state agencies and $100 million to municipalities, nonprofits and others.

“This settlement is only a first step in an ongoing investigation aimed at recovering restitution from the nation’s biggest financial institutions for relentlessly shortchanging taxpayers and nonprofits,” Connecticut’s attorney general, Richard Blumenthal, said in a statement. “The conspiracy admitted by Bank of America deceived and defrauded municipalities and nonprofits in a web of bid-rigging and deceptive conduct, costing millions and involving several of the country’s major financial institutions.”

9 Responses

  1. From Recent Testimony
    By M.Soliman

    Defendants engaged in transactions involving the transfer of “financial assets”, such as securitizations of receivables or loans, sales of loan participations, repurchase agreements, securities lending and factoring arrangements.

    Relying on expert testimony has allowed Plaintiff to see where esoteric and highly specialized accounting procedures and accounting rules have allowed the defendant’s to capitalize on a fraud deemed the largest ever in scale and scope with only ENRON debacle a distant second place.

    We opine the QSPE represents the classic fraud scheme which is part of about 30% of all fraud that is uncovered. FASB is continually giving in to the pteessures of legalizing fraud. Consider where the
    QSPEs are non-consolidated “auto-pilot” or “brain dead” SPEs that must meet the stringent requirements set forth in paragraph 35 of SFAS 140.

    Evaluating whether (or to what extent) a QSPE may “rollover” beneficial interests and whether a QSPE’s servicer may permissibly engage in certain servicing activities involving discretion must be considered in light of paragraph 35(b),which directs that the activities of a QSPE be “significantly limited” and “entirely specified”.

    Still nothing definitive exists here as FASB knows there inability to change forever what most of us understand as 1+1= 2 means and end to bank easy profits and the start of a long list of indictments.

    Bribery and corruption include schemes such as shell company schemes, lobbying to influence decision-making, manipulation of contracts, or substitution of inferior goods.

    The FASB staff recommended that the governing board address these issues pertaining to the permitted activities of QSPE jointly for efficiency and to ensure that consistent guidance is provided for those related issues.

    The Board agreed to combine the servicer discretion project into the transfer’s project and deliberate all matters related to the permitted activities and investments of a QSPE under this one, never ending project.

    Herein is the least common type of fraud known as financial statement fraud. Although it occurs least frequently, in only 10% of all fraud cases, it is easily the most expensive.

    In the United States, the provisions of Statement of Financial Accounting Standards No.140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS 140), issued in September 2000, generally dictate whether these transactions qualify for sales accounting (“Derecognition” of the transferred asset) or must instead be reported as “on balance sheet” financing arrangements.

    This type of fraud centers on the manipulation of financial statements in order to create financial opportunities for an individual or entity. Think manipulation of stock price, increased year-end bonuses, favorable loan terms, or other indirect benefits from the financial statement fraud.

    In securitization the Reporting Entity first step is to determine the reporting entity that is considering whether to derecognize a financial asset.

    Defendant originates loans as an individual entity. This is to mean the lender is separate entity from the servicing entity. In this matter the meaning of this important criteria is the lender, the servicer and the bank itself can each have a role that release the other of forever having any interest in the plaintiffs’ loan.

    The lender therefore has forever sold away any right it may have in the subject loan.

    The FDIC member bank is nothing more than a separate business transaction upon which it funds the subject loan for the lender.

    The serving agent bearing the lenders name is only concerned with removing the loan or “deleting” the borrower file from its inventory, typically after the second month’s payment is missed and thereby declaring a default.

    Plaintiff’s basis for claims are fact and supported by analysis that contemplates the defendant’s ability to segment and apply part of a financial asset versus the financial asset in its entirety.

    Defendants means and methods for its object, derecognition requirement, is only applied to a part of a financial asset whereby the part being considered for derecognition has met one of each of the three conditions throughout the life of the Plaintiff’s loan.

    The cash flow stream is either partitioned or the loan is fractionalized – which is it? The arguments comprise specifically identified cash flows or a pro rata share of the cash flows from the financial asset and shares the specifically identified cash flows from the same financial asset, the borrower’s loan.

    We conclude , we don’t see where the foreclosure is ever possible without government preemptive efforts and forfeiture.

    The third step is to consider whether the contractual rights to the financial asset have expired. If they have then it is fairly obvious that the asset should be derecognized. The plaintiff’s loan by virtue of foreclosure was never expired as it was defaulted on and paid by the investments overcollateralization.

    The fourth step is to consider whether there has been a transfer of the financial asset. Section 18 of the standard provides that there are two ways in which an entity might transfer an asset: (a) If there is a transfer of the contractual right to receive the cash flows of the financial asset; or

    Since January 2003, the Financial Accounting Standards Board (FASB) added a project to re-examine certain provisions in SFAS 140. At the time, it was issued many believed this initiative would lead to a relatively narrow, “quick-fix” amendment to the standard.

    However, this has not proven to be the case—instead, this effort has morphed into a project having a much broader scope.

  2. It is unbelievable, but the crime spree goes on and on. They could be charged with RICO, but nobody does their job. They are all in it together, the mega banks, our worthless government, the DOJ, the SEC, and maybe the IRS. It is going to have to come from us, the people, to get something done about this. We were asleep at the switch. Now, we have awakened, and our very country is at risk.

  3. tony

    Good post — but the main reason a bank will purchase the tax liens is protect their priority lien position on the mortgage. Tax lien holders typically have priority to foreclose over any other party – including mortgagee/creditor. The bank has to purchase these liens — before someone else does– to protect their first priority interest.

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  5. […] from: Bank of America Pays $137 Million in Bid-Rigging Case   Tags: clouded title, gtc | honor Posted in: […]

  6. BofA it’s nothing but thieves with licenses to steal from the american people, they know it, we know it, the govt. knows it, and yet NOTHING is done about it!! all they do is playing these F*****ng games, it is insulting to the American people, and they just look at us in the eye and say: FFFFFFFFF YOU!!!!!. Allow me to flush the toilet with BofA in it, there it’s where they belong along with the other thieves!

  7. How angry are the people that bought into this sub-prime mortgage morrass?

    My fight will continue with the courts


  8. I find this as “chump change”, a 2007 reported BOA descretion is now news, BS!

    I would surmise that any brokered settlement at this day and age is nothing more than pure PR “fluff”!


  9. The funny thing is that Bank of America is now buying tax liens and putting them in so call “securitization trust”. Check this link out:

    They are bid rigging in this area too. They will make good money in one, pay off once they get great profit and turn to another game to play. Now that fasb 166 is in place I will love how they are going to account for this tax lien game on there books.

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