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Ex-Bank of America Municipal Chief Faces U.S. Regulatory Action

Phillip Murphy, the former Bank of America Corp. executive who ran the municipal derivatives business at the center of a criminal investigation, is the subject of a regulatory action filed by U.S. banking regulators.

The Office of the Comptroller of the Currency, which oversees national banks, filed a “notice of charges” against Murphy in August 2008 that was placed under seal, according to a Securities and Exchange Commission filing by his current employer, Winters & Co. Advisors LLC. The Sept. 24 SEC filing didn’t disclose the nature of the notice.

Bank of America, the largest U.S. bank, has been cooperating for more than three years with Justice Department prosecutors who say that bankers paid kickbacks to financial advisers to rig bids on investment contracts sold to local governments. The bank, based in Charlotte, North Carolina, is among more than a dozen the government says conspired on the deals, according to court documents obtained by Bloomberg.

The Office of the Comptroller of the Currency files notices of charges against people when they start a civil case, just as indictments are filed at the beginning of criminal complaints, said Ralph Sharpe, a former director of enforcement at the agency who is now a lawyer with Venable LLP in Washington. “That starts the process,” he said.

Murphy, reached on his cell phone, hung up when questioned by a reporter. Christopher Winters, president of Winters & Co. in Los Angeles, declined to comment. Shirley Norton, a spokeswoman for Bank of America, declined to comment, as did Kevin Mukri, a spokesman for the comptroller’s office.

Colleague Pleads

The disclosure by Winters comes after Douglas Campbell, who worked for Murphy at Bank of America until 2002, pleaded guilty to criminal conspiracy and fraud charges last month. He was the second investment banker to admit involvement. Former UBS AG employee Mark Zaino pleaded guilty in May.

The comptroller’s office has been working with the Justice Department on the case since 2008, according to court records. The SEC and the Internal Revenue Service have also helped prosecutors.

Sharpe, the former enforcement director, said the office sometimes delays proceedings when a criminal case is being conducted so it doesn’t interfere. “Sometimes they will stay their hand and wait,” he said.

Investment Deals

The Justice Department investigation centers on guaranteed- investment contracts, known as GICs, that municipalities buy with money raised through bond sales. The investments let them earn a return on the cash until the funds are needed for schools, roads and other public works. The U.S. Treasury Department encourages competitive bidding for the contracts to ensure that localities obtain market rates.

Prosecutors say that favored bankers received inside information from brokers who handled the bidding so they could carve up the market. The bankers compensated the brokers with kickbacks disguised as fees on derivative transactions known as interest-rate swaps, according to the charges.

Murphy joined Bank of America in 1998 to head its municipal derivatives unit, which sold investment agreements and interest-rate swaps to local governments. He left in 2002, after Bank of America fired Campbell for making payments to firms on transactions in which they weren’t involved, according to court records.

Develop Relationships

The recipients of such payments included CDR Financial Products Inc., the investment-contract broker whose founder and two senior executives were indicted in October; UBS AG; and Winters & Co., Murphy’s current employer, according to a June 2002 e-mail from Campbell to Murphy. The message was included in filings of a lawsuit Murphy brought against Bank of America in 2003 in a North Carolina state court.

In CDR’s case, Campbell said, the payments were made to “develop a better relationship.”

In the charges to which Campbell pleaded guilty last month, prosecutors said that he paid kickbacks, disguised as fees, to CDR for steering investment deals to Bank of America.

Murphy, who said in his lawsuit that he was shunned as a whistleblower for flagging Campbell’s payments, is listed as a unindicted co-conspirator in the CDR case, according to court documents obtained by Bloomberg that are now under seal.

Seven people have pleaded guilty to criminal charges in the Justice Department’s case. Three CDR executives and three former employees of a General Electric Co. unit that sold the investment contracts have also been indicted in the case and have pleaded not guilty.

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