Wells Fargo has announced that the company will pay $148.2 million to settle charges of rigging bidding competitions to win city and county contracts. Federal and state regulators were investigating the actions of Wachovia Bank employees, a company that Wells Fargo acquired in 2008.
The regulators claimed that Wachovia generated illicit gains of millions of dollars in fraudulently rigged municipal bond transactions occurring in 25 states and Puerto Rico. Wachovia is accused of rigging the bidding process for investments, causing municipalities to pay more for securities than fair market value.
States, cities, and counties raise money for needed projects such as building roads and repairing schools by selling bonds to investors with the help of banks. The funds that are not immediately used are generally invested with the help of the bank until the funds are needed for the project.
Some of the bids that Wachovia won were obtained through a practice known as “last looks”, where an agent releases information about competing bids to the company. Other bids were won through a practice known as “set-ups”, where a bidding agent deliberately obtains non-winning bids to tilt the field in Wachovia’s favor.
The Securities and Exchange Commission said that the rigged transactions occurred over an 8-year period and involved at least 58 rigged bidding competitions. Robert Khuzami, Director of the SEC’s Division of Enforcement, said, “Wachovia won bids by playing an elaborate game of `you scratch my back and I’ll scratch yours,’ rather than engaging in legitimate competition to win municipalities’ business.”
The settlement calls for Wells Fargo to pay $46.1 million to the Securities and Exchange Commission, $34.5 million to the Office of the Comptroller of the Currency, $8.9 million to the Internal Revenue Service, and $58.75 million to a group of state Attorneys General. The company said the required payments would not affect its financial results adversely.
A separate case in federal court was settled by Wells Fargo last month in New York regarding similar allegations brought by several states. Wells Fargo paid $37 million in that settlement. Wells Fargo released a statement stating that it was pleased to have resolved the matters and noted that the transactions in the case had been conducted by employees who are no longer employed by the company.