A former JPMorgan Chase & Co. banker became the eighth person to plead guilty to rigging investment contracts and derivatives in a federal antitrust investigation of the $2.8 trillion municipal-bond market.
James L. Hertz, whom the Justice Department said worked for a Manhattan-based financial institution that it didn’t name, pleaded guilty to bid-rigging, fraud and conspiracy charges, according to a department news release. He also agreed to cooperate with prosecutors. Hertz, 53, a Cranford, New Jersey, resident, was employed at New York-based JPMorgan from 1994 through 2008, according to records filed with the Financial Industry Regulatory Authority.
“Hertz and co-conspirators designated in advance which co- conspirator provider, either his employer or another financial institution, would be the winning bidder for certain investment agreements or other municipal finance contracts,” the Justice Department said.
Former bankers at Bank of America Corp. and UBS AG have pleaded guilty to conspiring with brokers to pay states and local governments below-market rates on investments purchased with bond proceeds. One branch of the conspiracy stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and nonprofits, Bloomberg News has reported.
AnnMarie Hauser, a spokeswoman for New York-based JPMorgan, didn’t immediately respond to a request for comment.
Hertz didn’t immediately return a telephone message left at his home. He is one of five former JPMorgan bankers who received letters informing them that they’re targets of the Justice Department probe, according to Finra records.
In September 2008, JPMorgan said it would stop selling derivatives -- financial instruments whose value is tied to another security -- to municipal borrowers. The bank has disclosed in company filings that it’s facing a civil suit by the U.S. Securities and Exchange Commission related to municipal-bond investment contracts and derivatives.
Hertz received tips from a Minnesota-based broker who worked for local governments, identified only as Broker E, about competitors’ bids so that he could alter his offers to win contracts, according to the charges.
He also conspired with another bank, identified as Financial Institution A, to fix prices for deals and submit intentionally losing bids to give the appearance of a legitimate auction and comply with U.S. Treasury regulations, according to court documents released today.
In 2001, Hertz competed for a derivative contract with an unnamed state university that would go to the firm offering the lowest interest rate, according to the charges. Hertz initially told Broker E he would do it for 4.029 percentage points.
The co-owner of the broker handling the bid signaled that Hertz could raise his offer to 4.039, which Hertz did, the court papers said. He was awarded the deal.
In another deal based on the lowest price a town could pay for a portfolio of securities, the broker, after collecting other bids, advised Hertz to raise his bid by $5,000. He did so and won the contract, according to the charges.
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