Attorney General’s Office Touts Bank Investigations, Restitution

HARTFORD — In the final few days of his tenure as Connecticut’s attorney general before transitioning to his seat in the US Senate, Richard Blumenthal has been busy with a couple of issues involving banks.

Mr Blumenthal announced December 7 that Bank of America will pay restitution under separate federal and multistate settlements totaling $137 million for its part in a nationwide scheme, including bid rigging and other anticompetitive conduct that defrauded state agencies, municipalities, school districts, and nonprofits in their purchase of municipal bond derivatives.

The settlements with Bank of America involve 20 states, the Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), the Internal Revenue Service (IRS), and the Federal Reserve Bank. Mr Blumenthal said the settlements will provide full restitution to state agencies, municipalities, and nonprofits throughout Connecticut and nationwide who were harmed by this scheme.

“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,” he said, adding that the multiagency investigation focused on individuals at Bank of America, other financial institutions and brokers in connection with the marketing and sale of municipal derivative investments.

Municipal derivatives are typically investment contracts that government issuers and nonprofits use to reinvest the proceeds of tax-exempt bond offerings until the funds are needed or hedge against interest rate risk, according to a release. The transactions are often awarded after a competitive bidding process or negotiated directly between the financial institution and the issuer.

“Financial institutions and brokers allegedly rigged bids, received and provided ‘last looks’ on bids and submitted noncompetitive ‘courtesy’ bids on these investments. The alleged schemes enriched financial institutions or brokers at the expense of towns, cities, school districts, and nonprofits,” Mr Blumenthal said. “Bank of America and co-conspirators allegedly lured towns and cities by falsely promising competitive bids and fair dealing. In reality, bids were choreographed schemes — designed to enrich financial institutions and brokers on the backs of taxpayers and nonprofits.”

An active and ongoing investigation is propelled by powerful evidence of wrongdoing that Bank of America provided against its co-conspirators, with a goal of using that information to provide additional financial recoveries.

In other news, Mr Blumenthal is demanding details from NewAlliance Bank and First Niagara about the impact of their proposed merger on employment and community lending, particularly involving small businesses, low and moderate-income families, and minorities.

The attorney general is also calling on state and federal regulators to hold public hearings in New Haven to ensure that local citizens and organizations are provided a fair opportunity to express concerns and get answers.

He, along with New Haven Mayor John DeStefano and community leaders, announced their parallel efforts at a press conference December 7.

“My main concern is jobs,” Mr Blumenthal said. “Will this merger mean more loans to local businesses creating more jobs — or will it bring layoffs and fewer loans? Will it power economic growth and expand employment or restrain and reduce it? I’m concerned about loan officers located only in Buffalo or New York solely responsible for decisions about loans to New Haven businesses and families.”

Among his requests, Mr Blumenthal’s information request to NewAlliance and First Niagara seeks:

*The actual number of job losses in Connecticut resulting from the merger, the specific categories of job losses, when cuts would take effect and specific categories of additional jobs available;

*First Niagara announced plans to decentralize business functions, creating a New England regional market center in New Haven. Mr Blumenthal wants details about how this will impact employment, as well as consumer credit and small business lending decisions. For example, will decisions regarding loans be made in New Haven if such loans are under and/or above a certain dollar amount? How have such decentralization plans worked elsewhere?

*First Niagara claims the merger will mean greater lending capacity, but Mr Blumenthal wants details on credit and lending for residential, small business, and/or consumer loans — as well as loans to promote affordable housing or other areas targeting low- to moderate-income borrowers.

*A detailed and enforceable plan to ensure a commitment to community investment and lending — particularly following First Niagara’s pledge to contribute an additional $7.5 million to support funding for nonprofit charitable organizations;

*First Niagara’s policies and procedures regarding use of loan servicers and selling of First Niagara-originated loans into the secondary market.