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Eight Financial Giants Including JPMorgan Chase and Bank of America Pay $70,000,000 Settlement

Last updated 04/03/2024 by

Rachel Whitener

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In a significant legal settlement, JPMorgan Chase, Bank of America, and six other financial giants have agreed to pay $70 million over allegations of fraud and conspiracy in the municipal bond market. The lawsuit, initiated by whistleblower Edelweiss Fund LLC in 2014, accused these institutions of manipulating interest rates on variable rate demand obligations (VRDOs) to boost profits illicitly. The settlement benefits the state of Illinois and rewards the whistleblower for exposing unethical practices in the financial industry, marking a pivotal moment for accountability and ethical conduct within the sector.
In a landmark resolution, eight leading financial institutions have agreed to pay a combined total of $70 million to settle allegations stemming from a decade-long legal battle. The lawsuit accused the banks of engaging in fraudulent practices and conspiracy related to handling municipal bonds, casting a shadow over the financial industry.

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Background and allegations

JPMorgan Chase, Bank of America, Citigroup, Morgan Stanley, Fifth Third Bancorp, Barclays, Bank of Montreal (BMO), and William Blair are at the center of this legal storm. The financial behemoths faced serious accusations laid out in a lawsuit initiated in 2014 by the whistleblower entity Edelweiss Fund LLC. The lawsuit alleged the institutions manipulated interest rates on municipal bonds to illicitly boost their profits to the detriment of municipalities and investors.
Municipal bonds, particularly variable rate demand obligations (VRDOs), serve as a critical financial tool for municipalities, enabling them to secure long-term financing for public projects. These bonds typically offer tax-exempt interest rates and have long maturities ranging from 20 to 30 years. According to the lawsuit, the accused banks were hired to ensure these bonds were marketed at the lowest possible interest rates. However, Edelweiss Fund LLC contended that, rather than fulfilling this duty, the banks engaged in a scheme to inflate the rates.
This manipulation allegedly aimed to generate higher bank fees and deter investors from converting their bonds into cash. This practice would have required the banks to return the principal to the investors.

The settlement and its implications

After years of legal proceedings, a settlement was reached, marking a significant moment of accountability for the implicated financial institutions. The state of Illinois, one of the major parties affected by the alleged malpractices, is set to receive $33.6 million from the settlement pool. Meanwhile, Johan Rosenberg, the principal of Edelweiss and the whistleblower who brought this issue to light, will be awarded $14.4 million. The remaining $22 million of the settlement funds are earmarked for covering the legal costs incurred throughout the litigation.
Johan Rosenberg expressed that his primary motivation for pursuing this case was to expose questionable operations within the VRDO market. He aimed to ensure that public projects, which greatly benefit from the financing obtained through these bonds, were not compromised by unethical financial practices. This settlement represents an economic victory for the affected parties and highlights the need for transparency and ethical conduct in financial markets, especially in sectors as critical as public financing.

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