Several Connecticut municipalities and nonprofit organizations are expected to benefit from multi-million-dollar settlements with Natixis Funding Corp. and Societe Generale S.A.
The settlements resolve allegations that the companies engaged in fraudulent and anticompetitive conduct in municipal bond derivative transactions with governments and organizations around the country, Attorney General George Jepsen announced.
Natixis and Societe Generale will pay $29.9 million and $26.7 million respectively as part of a coordinated multi-state and private class settlement, of which $53.8 million will be paid into a settlement fund.
A significant portion of those monies will be used to provide restitution to municipalities, counties, government agencies, school districts and nonprofits that entered into municipal bond derivatives contracts with the companies. The settlements are the sixth and seventh settlements resulting from a multistate investigation led by the attorneys general of Connecticut and New York.
While exact amounts and disbursements have yet to be calculated, the Connecticut Clean Water Fund, the cities of Stamford and West Haven, the Connecticut Health Education Facilities Authority and the Connecticut Higher Education Supplemental Loan Authority are among the entities expected to be eligible to receive settlement funds.
Jepsen said in a statement municipal bond derivatives are contracts that tax-exempt issuers use to reinvest proceeds of bond sales until the funds are needed or to hedge interest-rate risk.
In April 2008, the states began investigating allegations that certain large financial institutions – including national banks and insurance companies and certain brokers and swap advisors – engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.
The states alleged that, rather than establishing honest and fair contract terms for municipal derivative sales, certain Natixis and Societe Generale employees submitted noncompetitive courtesy bids and fraudulent certificates of compliance to government agencies. The misconduct led local and state governments and nonprofits to enter into municipal derivatives contracts on less advantageous terms than they would have otherwise.
The investigation previously led to settlements with Bank of America, UBS AG, JP Morgan Chase, Wachovia Bank N.A and GE Funding Capital Market Services, Inc. that total approximately $350 million, the vast majority of which has been distributed as restitution. This settlement pushes the total restitution to over $400 million.
