Ex-BofA Executive Pleads Guilty in Muni Bond Rigging CaseMelba Newsome and Jef Feeley
Former Bank of America Corp. executive Phillip D. Murphy pleaded guilty to conspiring to defraud bond investors and the U.S. government through a bid-rigging scheme, prosecutors said.
Murphy, former head of the bank’s municipal derivatives desk, admitted in federal court in Charlotte, North Carolina, to manipulating the bidding process for investment agreements covering municipal-bond proceeds, Steven Tugander, a U.S. Justice Department lawyer, said today in an interview.
Murphy’s guilty plea resulted from the government’s multiyear probe of bid-rigging of investment contracts involving monies generated by municipal bonds. Bank of America, JPMorgan Chase & Co., UBS AG, Wells Fargo & Co. and General Electric Co. have acknowledged that former employees engaged in illegal activity in connection with the scheme, and the companies paid a total of $743 million in restitution and penalties.
“By manipulating what was intended to be a competitive bidding process, the conspirators defrauded municipalities, public entities and taxpayers across the country,” Brent Snyder, a Justice Department prosecutor who specializes in antitrust cases, said in an e-mailed statement.
Bill Halldin, a Bank of America spokesman, declined to comment on the guilty plea.
“By pleading guilty Mr. Murphy hopes to begin to put this behind him and move forward in his life,” Susan Necheles, a lawyer for the former Bank of America executive, said in an e-mailed statement.
Bank of America, which self-reported the illegal activity, has been cooperating for more than four years with prosecutors who have said that bankers paid kickbacks to CDR Financial Products Inc. to rig bids on investment contracts sold to local governments.
Municipalities bought the contracts with money raised through bond sales, which allowed them to earn a return until the funds were needed for schools, roads and other public works.
From 1998 to 2006, Murphy conspired with CDR officials to increase the number of and profitability of investment agreements and municipal finance contracts that went to the bank, according to the indictment. Murphy won auctions for the investment contracts after other banks agreed to submit intentionally losing bids, the government said.
In legal filings, prosecutors said that favored bankers received inside information from brokers who handled the bidding so they could carve up the market. Kickbacks were disguised as fees on derivative transactions.
In October 2001, CDR arranged for another bank to submit an intentionally losing bid to ensure the company referred to in the indictment as “financial institution A” won an investment contract for the J. David Gladstone Institutes, a bio-medical research center in San Francisco, according to the indictment.
In exchange, Murphy agreed to pay CDR a $70,000 kickback, according to the indictment. The payment, made in January 2002, was disguised on a trade ticket as a fee in connection with a swap that was unrelated to the Gladstone Institutes deal, the U.S. said.
Murphy was indicted in July 2010 on wire fraud and conspiracy charges, according to records filed in federal court in Charlotte. The wire-fraud charge carries a maximum penalty of 30 years in prison while the longest term for the conspiracy charges is five years.
The former executive pleaded guilty today before U.S. District Judge Max Cogburn Jr. in Charlotte. He’ll be sentenced later. Murphy had been scheduled to go to trial today, according to court records.
This month, CDR founder David Rubin, who has pleaded guilty in connection with the bid-rigging scheme, asked a federal judge in New York to sentence him to home detention or community service instead of the 19-year sentence prosecutors have suggested. CDR is based in Beverly Hills, California.
Murphy brings to 17 the number of former employees of the banks who have pleaded guilty to charges stemming from the probe, prosecutors said.
The case is U.S. v. Murphy, 12-cr-00235, U.S. District Court, Western District of North Carolina (Charlotte).