Eight financial giants are spending tens of millions of dollars to settle a decade-long whistleblower lawsuit.
JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley, Fifth Third Bancorp, Barclays, Bank of Montreal (BMO) and William Blair were indicted in 2014, accused of making millions in illegal profits by manipulating municipal bond yields .
The whistleblower, identified in the lawsuit as Edelweiss Fund LLC, says the companies paid $70 million to settle the class action lawsuit, which involved at least fourteen states and a list of government agencies.
Edelweiss accused the group of Wall Street firms of “widespread fraud and conspiracy” after the state of Illinois hired them to market municipal bonds known as variable rate obligations (VRDOs) at the lowest possible interest rates.
VRDOs are tax-exempt bonds issued by municipalities to obtain long-term financing, usually with a term of 20 to 30 years.
But instead of marketing the bonds at low interest rates, the banks allegedly inflated interest rates to generate millions of dollars in fees and discourage investors from converting the debt securities into cash.
Now that the settlement has been “completed and executed,” the state of Illinois will collect $33.6 million, while Edelweiss CEO Johan Rosenberg will receive $14.4 million as a reward for filing the lawsuit on behalf of the government. The remaining $22 million will be set aside to pay for legal fees incurred by Edelweiss over the years.
Says Rosenberg,
“When I started researching how rates for VRDOs were reset around 2010, my goal was to shine a light on this market because of the benefit the public gets from the crucial government projects that VRDOs fund.
In the years since the lawsuit began, we have discovered much that was previously unknown about how this market is managed and how remarketing agents behave.”
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