Case Details

Year Initiated/Committed

2011

Year Resolved

2011

Settlement Amount

$30 million restitution, $1.25 million civil penalties, $3 million costs

Court

n/a

Docket Number

n/a

Lead State

CT, IL, NY, TX

Participating States

AL, CA, CO, CT, DC, FL, ID, IL, KS, MA, MD, MI, MO, MT, NC, NJ, NV, NY, OH, OR, PA, SC, TN, TX, WI

Defendant(s)

GE Capital Funding Market Services Inc.

Case Description

Starting in 2008, the states investigated the municipal bond derivatives market, where tax exempt entities like governments and nonprofit organizations issue bonds and reinvest the proceeds until the funds are needed or enter into contracts to hedge interest rate risk on bonds. GE Funding is the fifth financial institution to settle with the multistate working group in the ongoing municipal bond derivatives investigation following Bank of America, UBS AG, JP Morgan and Wachovia.
The investigation revealed conspiratorial and fraudulent conduct involving individuals at financial institutions and certain brokers with whom they had working relationships. 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. The conduct allowed GE Funding to submit a “last look’’ bid, while the broker arranged for other financial institutions to submit purposely non-winning courtesy bids. Because of the “last look,” on many occasions GE Funding was able to lower its bid to the issuer and still win the transaction.The misconduct led state and local entities, such as municipalities, counties, school districts and other government agencies, as well as nonprofits, to enter into municipal derivatives contracts on less advantageous terms than they would have otherwise.