Wells Fargo to pay $148.2 mn to settle auction-rate securities rigging

Wells Fargo & Co yesterday became the fourth US bank to enter into a settlement with US government agencies on charges of bid-rigging by agreeing to pay to the US government $148.2 million.

The agreement is the latest action in a more than a five-year investigation into how Wall Street banks conspired with local-government advisers in the municipal-securities market to reap profits by rigging auctions.

The settlement will resolve investigations into Wachovia Bank, which Wells Fargo acquired in 2008, by federal agencies, including the Securities and Exchange Commission (SEC), the Justice Department (DOJ), and attorney generals of 26 states.

The DOJ alleges that from 1998 through 2004, certain former Wachovia employees at its municipal derivatives desk entered into unlawful agreements to manipulate the bidding process and rig bids on municipal auction-rate securities. These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other public entities.

Auction-rate securities are debt investments issued by municipalities, student-loan agencies, closed-end funds and others, with interest rates that are reset at weekly or monthly auctions run by the investment firms.

''The illegal conduct at Wachovia Bank corrupted the bidding practices for investment contracts and deprived municipalities of the competitive process to which they were entitled,'' said Sharis Pozen, acting assistant attorney general in charge of the DOJ's antitrust division.